As many deal observers expected, Black Knight is divesting its Empower loan origination system in order to win regulatory approval for the acquisition by Intercontinental Exchange.
The transaction was announced one day following a published report that the Federal Trade Commission will file a lawsuit on Thursday seeking to halt the deal.
“In connection with the amendment to the merger agreement, ICE has committed to, among other things, litigate with the FTC, if necessary, to obtain approval of the merger,” the press release announcing the deal said. The Empower sale is dependent on the ICE-Black Knight deal closing.
Furthermore, ICE is reducing the compensation for Black Knight to $75 per share in cash and stock for a valuation of $11.7 billion. Originally, ICE was paying $85 per share in cash and stock at a $13.1 billion valuation.
The new terms call for approximately $68 in cash and 0.0682 shares of ICE stock per Black Knight share.
The companies declined to answer questions about the revised terms or the asset sale, including whether the reduced compensation was related to Black Knight’s smaller size, its current stock price or both.
When the transaction was first announced, ICE executives said they didn’t expect to sell Empower in order for the deal to go through.
On March 6, Black Knight closed at $58.45 per share. But after the news broke prior to the stock market opening on Tuesday morning, Black Knight was trading at $60.27 per share, the highest since Feb. 27 when a Politico article stated the FTC will be filing a lawsuit sometime in March.
Deal opponents, including the Community Home Lenders of America and former Mortgage Bankers Association CEO David Stevens, in the past have stated a sale of Empower is not enough for regulators to approve the deal. The real issue is the vertical integration the combination would create, with significant, if not dominant, market share in origination and servicing technology, as well the secondary market with ICE’s ownership of MERS.
Because of the revisions to the transactions terms, a previous vote on Sept. 21, 2022 to approve the deal by Black Knight shareholders is no longer in effect and a new special meeting will have to be held.
The proposed buyer of Empower is a Toronto-based company, Constellation Software. That company also declined to comment. Terms of the transaction were not disclosed.
Truist Securities was the financial advisor for ICE and Black Knight for the sale, which includes the Exchange, LendingSpace and AIVA systems.
LendingSpace is a loan origination system used by correspondent aggregators that Black Knight forerunner Lender Processing Services acquired in 2012.
AIVA is the artificial intelligence technology which came with Black Knight’s 2018 purchase of HeavyWater.
Among Constellation Software’s subsidiaries is Constellation Mortgage Solutions, the parent of Mortgage Builder and ReverseVision.
Constellation Software “will not take over the day-to-day management of its businesses,” a page on the company’s website about acquisitions states. “We continue to rely on the managers and employees of our subsidiaries to run their businesses well.”
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