FTC sets terms on $11.9 billion Black Knight deal

The Federal Trade Commission will monitor the merged company.

  • By
  • | 12:00 a.m. September 7, 2023
Intercontinental Exchange Inc. acquired Black Knight Inc. for $11.9 billion.
Intercontinental Exchange Inc. acquired Black Knight Inc. for $11.9 billion.
  • Columnists
  • Basch Report
  • Share

The Federal Trade Commission approved Intercontinental Exchange Inc.’s acquisition of Jacksonville-based Black Knight Inc., but added some conditions on the merger.

The FTC had opposed the deal announced in May 2022 because of concerns it would give Atlanta-based ICE too much control over the U.S. mortgage technology market.

The companies were able to complete the $11.9 billion merger Sept. 5 after the FTC gave final approval Aug. 31.

The companies tried in March to satisfy the FTC’s concerns by agreeing to sell Black Knight’s loan origination system, called Empower. When that wasn’t enough, they agreed in July to sell Black Knight’s mortgage data subsidiary called Optimal Blue, which provides product, pricing and eligibility services, known as PPE.

“This deal as originally structured would have reduced competition in key areas of the mortgage origination process, raising costs for lenders and homebuyers,” said Henry Liu, director of the FTC’s Bureau of Competition, in a news release.

“To address these concerns, the Commission’s order provides structural relief and a variety of tools to preserve competition in these critical markets.”

Besides their agreement to sell those two subsidiaries to Constellation Software Inc., the FTC’s order requires ICE to seek FTC approval before reacquiring any divested asset or acquiring an interest in a loan origination system for the next 10 years.

The FTC said ICE, which is best known as the operator of the New York Stock Exchange, has the dominant loan origination system in the U.S. and Empower is the second largest.

The agency said Black Knight’s Optimal Blue unit is the dominant PPE system, “a software used to identify and secure loan rates when generating a mortgage,” and ICE operates Optimal Blue’s largest rival.

ICE will have to notify the FTC before acquiring another PPE for the next 10 years, according to the order.

The FTC order also prevents ICE from enforcing any noncompete provision against any employee who seeks a position with the divested businesses.

Black Knight’s main business is a system that processes nearly two-thirds of all U.S. first mortgage loans. That business traces its roots back 60 years to a Jacksonville company called Computer Power Inc.

ICE has said it will continue to operate the Black Knight business in Jacksonville after completing the acquisition.

Fund manager Einhorn profits from Black Knight deal

Well-known hedge fund manager David Einhorn profited in 2015 from betting that The St. Joe Co.’s stock would drop.

Eight years later, he’s profiting again on another Jacksonville-based company after a bet that Black Knight would rise.

ICE agreed in March to revised terms that estimated it would buy Black Knight for $75 a share in cash and stock. 

In an April letter to investors in his fund, Greenlight Capital, Einhorn said he bought a stake in Black Knight for an average of $60.59 per share at a time when Wall Street was unsure if the FTC would approve the buyout.

“Black Knight shares ended the quarter at $57.56, implying just greater than a 25% chance of the deal succeeding. We handicap the odds at close to 75%,” the letter said.

The final value of the deal, which was based on ICE’s stock price in the days before the merger closed, was $75.867 per Black Knight share.

Bloomberg News reported Greenlight Capital made more than $20 million from its bet on Black Knight.

Einhorn began shorting stock of St. Joe in 2006, when the real estate developer was headquartered in Jacksonville.

When investors short a stock, they borrow shares of the stock and then sell them, expecting the price to fall. When the price does drop, they cover, or buy shares at the lower price to pay off the debt, making a profit on the difference.

After St. Joe moved its headquarters to the Florida Panhandle in 2010, Einhorn received attention by stating at an investor conference that he thought St. Joe’s land holdings were overvalued.

That ignited a feud with St. Joe’s largest shareholder, another well-known hedge fund manager named Bruce Berkowitz.

The New York Post called the feud “the clash of the financial titans.”

Einhorn said in a 2015 shareholder letter he was ready to “declare victory” as he bought St. Joe shares at $17.17 each, after shorting the shares and selling them at a price of $36.90.

Dollar General execs supporting Jacksonville

Just days after the murder of three people at a Jacksonville store, Dollar General Corp. held its scheduled quarterly conference call Aug. 31, but company officials’ thoughts were elsewhere.

“Before we discuss the quarter, I want to address the tragic event of last Saturday,” CEO Jeff Owen said.

“On August 26, we lost one member of the DG family and two customers to a senseless and hate-filled act of violence in our store in Jacksonville, Florida,” he said.

“We extend our deepest sympathies to their families and friends as well as to the greater Jacksonville community. It is in times of tragedy when community matters more than ever. Right now, we are focused on providing support, counseling and resources to our teams and their loved ones.”

Owen said Dollar General was evaluating ways to support the community. The next day, the Tennessee-based company announced a pledge of $2.5 million “to efforts and organizations focused on healing and hope” in Jacksonville.

“We stand with our team in Jacksonville and across the organization who are leading with empathy and courage. We are appreciative of local law enforcement’s quick response in Jacksonville, and their continued support in protecting our associates, customers and communities every day across this country,” Owen said in the conference call.

Gulf & Atlantic Railways expands network

Jacksonville-based Gulf & Atlantic Railways LLC announced an agreement Aug. 29 to acquire the rail assets of Pinsly Railroad Co., which operates an 18-mile railroad in Massachusetts.

This follows a deal in March to acquire three short-line railroads in Ohio, Indiana and Illinois, bringing the company’s operations to five railroads.

Its biggest line is Florida, Gulf & Atlantic, which operates 430 miles of track mainly along the Interstate 10 corridor in Florida.

Gulf & Atlantic also owns the Grenada Railway, which operates on 228 miles of track between Central Mississippi and Memphis.

Terms of the Pinsly deal were not announced.

Shoe Carnival sales and earnings drop

Shoe Carnival Inc., the footwear chain controlled by former Jacksonville Jaguars owner Wayne Weaver, reported lower sales and earnings for its second quarter ended July 29.

Sales fell 5.7% to $294.6 million and sales at stores open for more than one year dropped 6.5%.

The company said it grew e-commerce sales but soft traffic results within lower income households and urban markets affected total sales.

Earnings of 71 cents a share were 33 cents lower than the second quarter of fiscal 2022.

The Evansville, Indiana-based company opened its 400th store in August. It operates stores in 35 states and Puerto Rico under the Shoe Carnival and Shoe Station brands.

Weaver is chairman of Shoe Carnival and its largest shareholder. He and his wife, Delores, control 31.8% of the stock.