The percentages favor an FTC settlement of ICE-Black Knight deal

The Federal Commerce Fee (FTC) appears poised to decide on the merger take care of Intercontinental Alternate Inc. (ICE) and Black Knight, Keefe, Bruyette & Woods (KBW) mentioned in a word following the postponement of the preliminary injunction to August from this week.

ICE and Black Knight’s settlement to promote its product and pricing engine unit Optimum Blue enterprise leaves the FTC with a weak case because it treatments the remaining horizontal overlap cited within the FTC’s grievance with a aggressive purchaser, Ryan Tomasello, managing director of KBW, mentioned within the word revealed on July 24. 

FTC’s suit in March to dam the proposed merger between ICE and Black Knight had two principal allegations. 

The businesses which have the 2 largest mortgage origination methods (LOS) will allegedly increase prices to lenders which might then be handed to homebuyers; and the deal would eradicate competitors for product, pricing and eligibility engines (PPEs) and different numerous ancillary companies which might be add-ons to LOS, the FTC argued.

ICE and Black Knight agreed to promote Black Knight’s LOS Empower enterprise and Optimum Blue to a subsidiary of Constellation Software program Inc. to deal with antitrust considerations raised by the FTC.

Following an settlement to promote Black Knight’s Optimum Blue, the FTC, ICE and Black Knight requested a federal courtroom to delay a preliminary injunction listening to set for July 24-26 to August 14-August 16. The Federal District Court docket for the Northern District of California granted the request to have the listening to continued on Aug. 14.

The deliberate sale of Optimum Blue requires time for the FTC employees to research the implications of the divestiture for this case and divestiture for this case and the parallel administrative proceedings; talk about a possible decision of the pending matter with Defendants;  and advise the FTC Commissioners, the events mentioned within the court filing.

“Contemplating the FTC concurrently filed a joint movement with ICE/BKI to postpone the trial, this means to us that there could have been some stage of coordination among the many events,” Tomasello mentioned in a word.

It’s attainable that the FTC requires time to overview the ultimate executed sale settlement earlier than previously figuring out its resolution to settle. If a settlement is reached, KBW believes it could be earlier than the postponed August 14 trial, permitting the deal to shut within the third quarter of 2023. Tomasello added.

“The FTC can spin a settlement as a victory following a number of losses and up to date congressional scrutiny,” Tomasello mentioned.

Whereas analysts at KBW don’t dismiss the potential for the deal to nonetheless go to trial, in addition they see a “very excessive chance of approval” even when it goes to courtroom subsequent month.

Some traders have famous {that a} settlement may sign the FTC’s willingness to just accept last-minute divestitures, in addition to log out on monetary (personal fairness) patrons, which the FTC has traditionally considered as uncompetitive, in accordance with KBW. 

Different traders’ reasoning for the deal to nonetheless go to trial in August embody the FTC trying to increase the scope of its grievance past the LOS and PPE overlap and the FTC targeted on rewriting the antitrust regulation somewhat than successful in courtroom.

Most traders appear to agree that the choose can be unlikely to allow the submission of considerably new arguments at this stage and the FTC may have a a lot weaker case in courtroom following the divestiture of Optimum Blue, KBW added. 

Furthermore, the choose’s willingness to grant the joint movement to postpone the listening to appears an implicit acknowledgment of the divestiture as a cloth improvement that ought to
be thought of at trial, Tomasello famous.

“We imagine deal approval by way of a trial would enable the merger to shut in late-3Q/4Q,” Tomasello mentioned.

If the merger goes by, it could be the second latest main mortgage tech deal for ICE, and would observe the acquisition of Ellie Mae from Thoma Bravo for $11 billion in 2020.