CoreLogic said recently hired financial advisory firm Greenhill & Co. will evaluate the company's financial strategy and “explore a wide range of options aimed at enhancing shareholder value,” up to and including a possible sale or merger of the Santa Ana, Calif.-based provider of mortgage and property data, analytics, technology and services.
Other actions on the table include cost savings initiatives, an evaluation of CoreLogic's capital structure, possible repurchases of debt and common stock or the potential disposition of business lines, the company said in a press release Monday, adding that the board of directors may not take any action after the review.
CoreLogic was spun off from First American Corp. in June 2010. Since then, the company said it has streamlined its operations by shuttering its employer and litigation services businesses and selling off its offshore outsourcing business to Cognizant. In conjunction with the sale, CoreLogic entered into a five-year services agreement with Cognizant that will reduce CoreLogic's global workforce by 40%.
“While the company continues to make significant progress on these initiatives, in light of the challenging economic environment and current market conditions, the Board has determined to look more closely at a range of alternatives with the assistance of a financial advisor,” CoreLogic's press release said.
On Monday, Highfields Capital Management, which holds a 7.7% stake in CoreLogic and is its largest shareholder, called for the company's sale.
"We are pleased that the CoreLogic board has taken the important first step of initiating a formal process to explore alternatives to maximize shareholder value and we look forward to a prompt and thorough process,” Highfields CEO Jonathan Jacobson said in a press statement. “As a long-standing shareholder, we are convinced that the best possible way to serve the interests of all shareholders is through a sale of the company to a strategic or financial buyer, of which we think there are many. We have made our views clear to the Board and management and will await the outcome with interest."
In March, CoreLogic purchased mortgage technology vendor Dorado for $32 million, a company that it previously had held a 38% stake in. It is also the largest shareholder of Ellie Mae, holding a 16.29% stake in the mortgage technology vendor that completed its initial public stock offering in April.
In May, CoreLogic priced a $400 million debt offering to raise funds to repay a portion of outstanding debt from its existing credit facility.
In the course of the spin-off, First American acquired 12.9 million shares of CoreLogic stock valued at $18.76 per share. In April, CoreLogic paid $75.8 million to repurchase 4 million of those shares for $18.95 per share, reducing First American's stake in the company by 31%. Under the terms of the spin-off, First American must divest itself of all its shares in CoreLogic no later than June 1, 2015 or pay additional taxes related to the spin-off.
CoreLogic's stock priced closed at $8.79 per share Monday, but was trading near $11 per share midday Tuesday.
CoreLogic posted net income of $31.48 million for the second quarter of 2011, an increase of nearly 29% from 2Q10's net income of $24.41 million. But the higher earnings were off lower revenue, $396.4 million in 2Q11, compared to $411 million in 2Q10.
“Regulatory and economic concerns have constrained the volume of mortgage originations despite low interest rates and record levels of single-family home affordability,” said Anand Nallathambi, CoreLogic president and CEO, in an earnings press statement earlier this month. “As a result, we did not experience the typical degree of seasonality in the second quarter. These effects, and lack of typical seasonality, negatively impacted our quarterly results on a year-over-year basis, and make us increasingly cautious in our outlook for the remainder of the year.”
After the 2Q11 financial results were released, Brett Horn, the associate director of the equity research department at Morningstar, wrote that the investment research firm was placing CoreLogic under review to reassess the firm's short-term and long-term profitability assumptions, even though it does not expect to make a dramatic reduction in its fair value estimate.
“Our biggest long-term concern is that the changing economics could be a long-term headwind for the appraisal business generally," Horn said. "On the other side, the company announced it is on track with its efforts to improve its cost structure; in our opinion, these efforts could have a material impact on profitability that could largely offset CoreLogic's current issues.”