Fitch: Stewart's Ratings Unaffected by Board Composition Agreement with Starboard Value LP

CHICAGO--()--Stewart Information Services Corporation's (Stewart) announcement that the company has entered into an agreement with Starboard Value LP (Starboard) to replace two members of the Board of Directors effective immediately and two further Board members in the near future does not affect the ratings of Stewart (Long-Term IDR 'BBB') or its subsidiaries (IFS 'A-'), according to Fitch Ratings.

Stewart announced yesterday that the company reached an agreement with Starboard, an activist investor that owns 9.9% of Stewart's outstanding common stock, to replace current Board members Stewart Morris, Jr. and Malcolm Morris with current-CEO Matt Morris and Clifford Press, effective immediately.

Furthermore, Stewart agreed to hire a nationally recognized director search firm to find replacements for two other current Board members. Stewart also separately entered into a settlement agreement with Foundation Asset Management, in which Foundation will abandon its consent solicitation to request a special meeting of stockholders.

While the replacement of four of nine members of the Board of Directors is a significant event, Fitch believes the changes are neutral to slightly positive for the company due to greater Board independence.

The agreement also allows Stewart to more closely focus on managing and improving title operations, and underlying profit margins, which could have positive credit implications. Stewart's current Rating Outlook is Negative relating to recent financial underperformance reducing capitalization metrics.

Over the longer term, changes in strategic direction or capital management by Stewart management under the newly comprised Board may have rating implications. Fitch's concerns surrounding activist investors' influence leading to more aggressive capital management practices are mitigated in the near term by a standstill provision, in which Starboard agrees to not make any offer or proposal for any merger, acquisition, recapitalization, restructuring, or business disposition/combination relating to Stewart.

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Contacts

Fitch Ratings
Primary Analyst
Jeremy Graczyk, CFA, +1-312-368-3208
Associate Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gerald Glombicki, CPA, +1-312-606-2354
Director
or
Media Relations
Hannah James, New York, +1-646-582-4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jeremy Graczyk, CFA, +1-312-368-3208
Associate Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gerald Glombicki, CPA, +1-312-606-2354
Director
or
Media Relations
Hannah James, New York, +1-646-582-4947
hannah.james@fitchratings.com