FNFV - Fidelity National Financial Ventures, FNFV Group

[Chalk bag]

Stock is when-issued now @ roughly $17 / share. Tracking stock being issued by FNF. Holds a bunch of asset including Remy, ABRH, J. Alexander’s, Ceridian, Stillwater Insurance Group, Cascade Timberlands, and some other stuff. SOTP is pretty straight-forward (see their presentation below) and gets one to $19 pretty easily. Would note that FNF's book is @ $14.50ish, and their cash cost @ 14ish. Given FNF-W trades at a bit of discount vs FAF, it's likely that guys buy FNF and short FNFV-W to create FNF-W stub and play the gap-close.

 

Here's the rub though. In their S-4, they disclosed

 

"Our tracking stock capital structure could create conflicts of interest, and our board of directors may make decisions that could adversely affect only some holders of our common stock."

 

In particular, the conflict of interest decisions include:

 

"decisions as to the conversion of shares of common stock of one group into shares of common stock of the other, which the board of directors may make in its sole discretion, so long as the shares are converted (other than in connection with the disposition of all or substantially all of a group’s assets) at a ratio that provides the stockholders of the converted stock with a premium based on the following requirements: (i) a 10% premium to such stock’s market price for the first year following the Recapitalization, (ii) an 8% premium to such stock’s market price for the second year following the Recapitalization, (iii) a 6% premium to such stock’s market price for the third year following the Recapitalization, (iv) a 4% premium to such stock’s market price for fourth year following the Recapitalization, (v) a 2% premium to such stock’s market price for the fifth year following the Recapitalization and (vi) no premium to such stock’s market price thereafter, with such premium to be based on, in each case, the market price of such stock over the 10-trading day period preceding the date on which the board of directors determines to effect any such conversion (each such premium, the Conversion Premium); no conversion premium is available for a conversion in connection with the disposition of all or substantially all of the assets of either group;"

 

While

 

"decisions as to operational and financial matters that could be considered detrimental to one group but beneficial to the other;" , this includes reattribution of assets, intergroup interest, internal or external financing, disposition of asset, and payment of dividends on the stock relating to either of our groups.

 

However, according to another risk clause:

 

"Under the principles of Delaware law and the business judgment rule referred to above, you may not be able to successfully challenge decisions that you believe have a disparate impact upon the stockholders of one of our groups if a majority of our board of directors is disinterested and independent with respect to the action taken, is adequately informed with respect to the action taken and acts in good faith and in the honest belief that the board of directors is acting in the best interest of FNF and all of our stockholders."

 

And in particular (this is very important)

 

"Each share of common stock of each group will have one vote per share. When holders of FNF common stock and FNFV common stock vote together as a single class, holders having a majority of the votes will be in a position to control the outcome of the vote even if the matter involves a conflict of interest among our stockholders or has a greater impact on one group than the other."

 

So, in aggregate, based on the 1:3 ratio, FNF will have 277 mm shares outstanding post "tracking-spin", and FNFV will have ~92 mm shares. Since they will vote together major issues, the total votable shares = ~364 mm shares, whereby FNF holders occupy the 75% majority.

 

And my point is, if I read this correctly, there is nothing stopping FNF from siphoning asset from FNFV, in fact, FNFV has absolutely no chance of getting the majority to vote in their favor in a strict sense. In other words, FNFV should trade at a material discount to the SOTP value, in my opinion. And in a hypothesized scenatio, there is nothing stopping FNF slamming FNFV for whatever reason, the calling the stock back @ 10% premium at a much lower price, effectively doing a rather unfair forced buyback at FNFV shareholders' detriment.

 

My question is why don't they just do a flat-out spin-off but instead chose this rather complicated route? This material conflict of interest is disturbing, unless I'm completely off-base. Perhaps you can argue that, price-wise, owning FNFV actually gets one more vote / dollar.

[ItsAValueTrap]

The benefit of the tracking stock structure is tax efficiency.

 

If you look at John Malone's trackers:

1- Malone usually had voting control, so he got his way with everything.  He was not unhappy with the tracking stock structure.

2- When AT&T did tracking stocks with Malone, things got a little ugly.  Malone strongly disagreed with AT&T's board about acquisitions.  Eventually Liberty and AT&T parted ways as Liberty was spun off.  However, after they parted, AT&T sued Liberty.  So yeah, AT&T sued its former partners.

 

Unfortunately conflicts of interest are inherent in the tracking stock structure.  Usually they aren't a big deal???

The board of directors has a fiduciary duty not to completely screw over one shareholder base.  However, many deals have some uncertainty and therefore you can make an argument that any particular deal unfairly benefits either group of shareholders.  The board of directors will be the arbiter of what a "fair" deal should be and all the shareholders are at the mercy of their decision.  Usually it's not a big deal.  Historically, the AT&T trackers were the worst-case scenario.

[Gopinath]

Looks substantially undervalued based on the book as the book itself is understated!

 

http://files.shareholder.com/downloads/FNT/0x0x754179/BB63C45D-289F-4EAD-9164-D2F02FF8512A/Investor_Update_FNFV_April_2014.pdf

[usdtor05]

Good quarter, more action being taken to unlock value.

 

http://finance.yahoo.com/news/fnfv-reports-fourth-quarter-2014-210400648.html

 

http://finance.yahoo.com/news/fnfv-announces-sale-assets-cascade-210600547.html

 

1. Good results in general from the business. Restaurant group picked up with margin improving and SSS up 2% across the pf of chains. Ceridian continues to be so so but looks like margin crept up from prior quarter. Digital insurance grew looks like margin came down a bit from prior quarter.

 

2. Over 9M shares remaining under buyback (around 10% of shares) and announced a dutch tender for what looks like another 12M shares...can't tell for sure if this is on top of the 9M...it looks like it.

 

3. Will be spinning J Alexander over to shareholders rather than IPOing it.

 

4. Likely will see some fo the FLT shares in the second or third quarter once the six month lockup on the 75% of the shares is done (May)

 

5. Sold the timber group for what looks to be around BV at $63M.

[junto.investing]

I've been pleasantly surprised at how quickly they've taken these actions. I used to own JAX, so I'm interested to see where it trades once it's spun out.

 

Are you paying attention to FNF as well? They're spinning Black Knight, which has some nice prospects.

[usdtor05]

Haven't paid much attention to FNF to be honest...will take a look at the proposed spin.

[junto.investing]

For anyone involved or following - Remy International, which was spun out of FNFV has signed an agreement to be acquired by BorgWarner for $29.50 in cash:

 

http://finance.yahoo.com/news/remy-signs-definitive-agreement-acquired-120000012.html

 

Their presentations always do a nice job of mapping out their next steps / monetization efforts:

 

http://www.investor.fnf.com/common/download/download.cfm?companyid=FNT&fileid=826412&filekey=FA2E30BA-3BED-4029-A52A-2D243E012CB0&filename=Investor_Update_FNFV_May_2015.pdf

[JayGatsby]

Slightly different company, but is anyone following FNF? It seems like a solid business as the biggest business in the title insurance industry. If you annualize their earnings this week their PE is ~5. Based on this thread it seems like they've done ok by shareholders historically.  Trying to understand the bear case.

 

It popped up from a tweet from Asif Suria, based on insider buying.

[RichardGibbons]

Slightly different company, but is anyone following FNF? It seems like a solid business as the biggest business in the title insurance industry. If you annualize their earnings this week their PE is ~5. Based on this thread it seems like they've done ok by shareholders historically.  Trying to understand the bear case.

 

It popped up from a tweet from Asif Suria, based on insider buying.

 

Yeah, I own FNF--I got into it pretty recently, when people here were  talking about Old Republic a few month back. But when I looked at the title insurance industry, Fidelity National looked more interesting to me than ORI.

 

I like the title insurance business. I think it has a couple competitive advantages that make it less competitive than the broader insurance business, a captive sales force and proprietary databases. So, I think it's more like an oligopoly than other more commoditized insurance markets.

 

That said, I don't think it's a good idea to just annualize their last quarter, because sales volumes of title insurance follow sales volumes of real estate. If rising interest rates crimp real estate transactions, it'll likely hurt Fidelity National's top line.

 

That said, despite that cyclicality, I think it's a reasonable stock to hold throughout the full cycle, because, unlike the commodity cycle, I don't get the sense that title insurance prices are fluctuating much, but just volumes.

[Spekulatius]

Slightly different company, but is anyone following FNF? It seems like a solid business as the biggest business in the title insurance industry. If you annualize their earnings this week their PE is ~5. Based on this thread it seems like they've done ok by shareholders historically.  Trying to understand the bear case.

 

It popped up from a tweet from Asif Suria, based on insider buying.

 

Yeah, I own FNF--I got into it pretty recently, when people here were  talking about Old Republic a few month back. But when I looked at the title insurance industry, Fidelity National looked more interesting to me than ORI.

 

I like the title insurance business. I think it has a couple competitive advantages that make it less competitive than the broader insurance business, a captive sales force and proprietary databases. So, I think it's more like an oligopoly than other more commoditized insurance markets.

 

That said, I don't think it's a good idea to just annualize their last quarter, because sales volumes of title insurance follow sales volumes of real estate. If rising interest rates crimp real estate transactions, it'll likely hurt Fidelity National's top line.

 

That said, despite that cyclicality, I think it's a reasonable stock to hold throughout the full cycle, because, unlike the commodity cycle, I don't get the sense that title insurance prices are fluctuating much, but just volumes.

 

I also looked at other title insurers besides ORI after I established a position and while FNF looked attractive, I did not like the acquisition of a life and annuity insurer. While I understand they it may be counter cyclical to the title insurance business in terms of interest sensitively life/ annuity insurance and sales is a much worse business than title insurance. So, I ended up buying a bit of FAF when it dunked, which worked out reasonable well.

Both FNF and FAF’s title insurance business seem to be better tun than ORI and I like that FAF invests a fair bit in automation/ software to reduce cost and simplify the process for the customer.