Biggest in Years,First American Spinoff Advances

Santa Ana-based First American Corp. is getting down to details in its plans to spin off its dominant title insurance business.

After waiting out the worst of the housing market and economy for nearly two years, First American is hustling to get a spinoff—the largest of its kind seen in Orange County in years—done by April.

Financial details for the spinoff, which will be called First American Financial Corp., were filed last month with the Securities and Exchange Commission.

The filing “is a key milestone for the spinoff,” Chief Financial Officer and Treasurer Anthony “Buddy” Piszel said.

The filing introduces a title insurance and financial services company that’s set to operate out of First American’s existing Santa Ana campus.

The new company is expected to have a market value of about $2.1 billion and annual revenue of more than $4 billion.

That’s a roughly one-third drop in revenue at the title business from the peak of the housing market in 2005.

The new company will have some $1.8 billion of equity, $614 million in cash and $324 million of debt, Piszel said during a conference call last month.

First American Financial also expects to pay $24 million in dividends annually, according to the SEC filing.

Despite being the spinoff, the new business will keep First American’s “FAF” New York Stock Exchange ticker.

First American’s faster-growing data and information services business—which has $2.1 billion in yearly revenue—is set to stay part of the current parent company. It will have a new name and a different New York Stock Exchange ticker.

Officials expect the data business to have a book value of $1.5 billion to $1.6 billion and hold about $609 million of debt, including all of First American’s existing bonds.

That would give it a 24% debt-to-capital ratio, which is “at the low end” compared to its tech-heavy peers, according to Piszel.

First American Financial’s debt-to-capital ratio will be about 15%, also conservative compared to its title insurance peers, he said.

The two companies will remain tight.

In addition to having both operate from First American’s sprawling campus off the Costa Mesa (55) Freeway, Piszel said the title business initially will own about $250 million of the data services company’s stock.

“Given the continued uncertainty in the real estate and mortgage markets, we decided to strengthen the liquidity, capitalization and flexibility of (the title company) through this investment,” Piszel said.

The title company plans to sell the shares within five years, he said.

The spinoff also calls for the title company to transfer about $100 million in cash to the parent company. That will give the data services business about $400 million in cash.

In addition to navigating through various regulatory approvals, a few details still are being worked out prior to the separation. Both companies plan to get new lines of credit in the first quarter, according to Piszel.

And First American still is looking to fill in a key management role, following the recent departure of Frank McMahon, chief executive of the company’s data services division. He long had been expected to keep that role after the spinoff.

Following McMahon’s departure, First American appointed Anand Nallathambi as the president and chief operating officer of the unit.

He previously served as president and chief executive of First Advantage Corp., a onetime publicly traded subsidiary that’s now part of First American’s data services group.

First American said a search is under way for a chief executive for the data services business. Nallathambi is a candidate, according to the company.

The title business spinoff, led by Chief Executive Dennis Gilmore, will be much slimmer than it was at the peak of the housing market.

First American Financial is set to have close to 14,000 employees at the time of its expected spinoff, which is down by nearly 10,000 workers from what it had in 2005.

More financial details for the remaining company, including a projected employee count, will be provided later, according to company officials.