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The FTC killed the $1.2bn Stewart & Fidelity merger. Good or bad?

So, as most of you probably know by now, the $1.2bn merger between Stewart and Fidelity, one of the “Big 4” underwriters in the country, crashed and burned. Fidelity will pay a $50 million reverse termination fee to Stewart, and that’s going to be the end of that marriage.

Stewart goes back to competing with Fidelity, First American and Old Republic, after making some changes to its executive team, focusing on it’s “standalone strategic plan built on growth and profitability”.

The REASON why this deal never happened, apparently, is the fact that the New York Department of Financial Services did not approve the acquisition of Stewart’s New York title operation. And that would have been cool because they would have found a way to go around this hurdle, BUT… the FTC shortly stepped in and blocked the deal altogether, citing concerns regarding “reduced competition”.

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Crash, boom, bang … but this is where things get messy.

On one hand, the FTC has a point. Since Stewart was the player that always focused on competing on price, merging it with Fidelity would have eliminated a balancing factor, keeping prices at decent levels, in certain markets.

The other point they’re making is that the merger would give too much control to Fidelity over so-called “title plants”, those large databases of chains of title, allowing for faster title searches, for underwriting purposes.

So, the FTC wants to regulate to maintain healthy competition. I get it. Everyone gets it. First American and Old Republic are still in good standing after this deal went south, and sure, it may have saved the day from a potential monopoly in the title insurance industry.

What I’m not ok with is a government agency regulating a merger between two companies, or an acquisition.

If you want to regulate to make sure there is healthy competition when it comes to pricing, that title plants are not de-facto controlled by one single entity, you should put rules in place to prevent exactly that. Be agnostic to who the players are and if the entity has that control because it merged or acquired another entity or it simply grew to have that influence on its own … Ok, FTC?

This creates a nasty precedent and brings up a few questions, such as:

a) If say, First American grew to own 80% of the title insurance market, because, um, they’re just crushing their game, no merger, no acquisition, just pure growth … would the FTC move to break FirstAm up, or what?

b) What does the FTC mean by “significant head-to-head competitors”. What’s the number? Does it have to be at least 4? How much is the maximum market share the 4 would have to control, cumulatively?

c) Should large companies worry about become too big now? What’s the point in growing then?

d) Why isn’t the FTC moving in to block acquisitions that put public data at risk and place sensitive information into the hands of single entities? … Oh, I don’t know … like Facebook and Google practically buying everyone in tech (and then risk leaking millions of user details to shady Cambridge Analytica-like companies)

Again, I get regulation and I’m ok with regulating markets. After all, this is the government’s job. But blocking transactions between two willing companies is a bit too much.

Let me know your thoughts below. Would love to hear them!

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