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Hedge funds circle Foley’s flagship as Fed enables leveraged deals

By   /   Friday, November 22nd, 2013  /   Comments Off on Hedge funds circle Foley’s flagship as Fed enables leveraged deals

What’s happening here is part of a bigger drama about ultra-low interest rates, the stock market and the prospect for a new credit bubble.

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Henry Dubroff

With CKE Restaurants, the Carpinteria-based parent of burger chains Carl’s Jr. and Hardee’s, shuffling from private equity firm to private equity firm, Wall Street is turning its attention to another company with strong regional ties, Bill Foley’s Fidelity National Financial.

Once based in Santa Barbara, where financier-turned-wine-guru Foley has been active of late, Fidelity National Financial, or FNF, decamped to Florida nearly a decade ago.

The reasons for the departure included sharply reduced taxes in the Sunshine State versus the Golden State, plus a sweet deal to relocate the company’s headquarters to Jacksonville.

The move looks pretty prescient in light of California’s Prop. 30 surcharges on the wealthy, but Foley himself has been raising his profile in the Tri-Counties again, expanding his wine holdings to include the Firestone brand and buying a stake in Bacara Resort & Spa in order to launch a new wine club there.

These days, FNF, which remains Foley’s flagship, is a collection of assets including a core title company, an information services company, restaurants, an engine equipment firm and Ceridian, a payroll company. It is in the process of buying Lender Processing Services, a real estate data provider that figures heavily in moving paperwork for new mortgages, refinancings and foreclosures.

And some people think that FNF, with Lender Processing as part of the package, could be worth more broken apart than kept intact.

Last month Corvex, a hedge fund, took a 17 million share stake in Fidelity National and said it thinks the company’s roughly $28.25 share price could double if its non-real-estate assets were spun off and the housing market was “normalized.”

On Nov. 20, Dan Loeb, whose Third Point hedge fund has lagged the market this year, disclosed a 2.1 million share stake in FNF. Third Point didn’t comment on the investment.
Financial magazine Barron’s — which featured the FNF stake by Corvex in its “Shareholder Activist Spotlight” column — noted that Corvex founder Keith Meister is a protégé of legendary saber-rattler Carl Icahn and a “top activist.”

What’s happening here is part of a bigger drama about ultra-low interest rates, the stock market and the prospect for a new credit bubble.

Any Average Joe investor who owned S&P 500 index funds this year is up close to 30 percent. But there are plenty of ultra-smart hedgies whose sophisticated long-short strategies are not panning out.

So they have no choice but to try to find undervalued stocks or underperformers and force managements to take action to give them returns that put them back in the game. Once targeted, a company can give in to the activists, buy back its shares at a premium or avoid all of the drama by going private.

That is in fact what Michael Dell did this fall with his eponymous computer company, what CEO David Murdock did recently with Dole Food Co., and what CKE Restaurants did a few years ago when it was acquired by Apollo Global Management for $1 billion.

Going private is only possible because the Federal Reserve is flooding the financial system with cash and long-term interest rates are artificially low. After exploring and ultimately ditching an IPO for CKE, Apollo on Nov. 20 put the restaurant group into the hands of Roark, an Atlanta-based firm that specializes in the industry.

How Foley and FNF will deal with new “BFFs” Corvex and Third Point will tell us a lot about the future of debt financing and the Federal Reserve’s policy of hyper-easy money.

• Contact Henry Dubroff at [email protected]

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