The Motley Fool Discussion Boards

Previous Page

Investing Education / Terms, Definitions, & Jargon

URL:  https://boards.fool.com/corporate-restructuring-increase-value-23715307.aspx

Subject:  Corporate restructuring increase value? Date:  2/16/2006  2:22 PM
Author:  akintola Number:  1654 of 2244

Or maybe this post should be called Finance for Non-Finance majors.

I've owned Fidelity National Financial (FNF) for the past year and have enjoyed the proceeds from several events but I don't quite understand why they happened.

From Morningstar "Fidelity National Financial is a holding company that markets homeowner and flood insurance. Fidelity's investments include an 82.5% stake in Fidelity National Title Group, the largest U.S. title insurer. If the merger with Certegy closes, Fidelity will also own about 50% of Fidelity National Information Services, which will trade under the ticker FIS."

The company did a leveraged recpaitalization back in March. They replaced some equity financing with debt, paid off other bank loans with the proceeds, and then returned the excess cash to investors as a special $10 dividend. The stock immediately dropped exactly $10 when the dividend was paid but quickly regained the "lost" value.

As someone who's more familiar with RE finance, this basically sounds like a cash out refi.... you have a home with a first and a second mortgage and a boat load of equity. You decided you want to invest in RE or pay for a big expense, so you refi, pay off the 1st and 2nd loan, and then put some extra cash in your pocket.

I think I understand the mechanism but I don't understand why it was considered favorable by analysts and the stock relatively quickly regained . It appears the company increased it's debt load, isn't that bad in an increasing interest rate environment?

This was also just one of several actions the management took to return value to shareholders. They spun of their IT/processing unit and gave some of the shares to current investors and merged another division with a competitor and retain a majority stake in the new company. I think I understand those actions better though... it's this leveraged recapitalization that's stumping me.
Copyright 1996-2022 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us