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.
