First American to split into two firms

First American Corp., the largest U.S. title insurer, will split into two publicly traded companies by separating its financial information and underwriting businesses. The stock rose 7.1%.

The unit with the title and specialty insurance operations will be spun off to shareholders, the Santa Ana-based firm said in a statement Tuesday. The existing holding company, to be renamed, will consist primarily of businesses that provide data on mortgages, properties and credit.

“It’s a smart move,” said Geoffrey Dunn, an analyst for New York-based KBW Inc., who has a “market perform” rating on the shares. “You’ve had two very different businesses mixed together, and this very much delineates the two.”

First American shares had dropped 27% in the last year as demand for title insurance, which protects home buyers from claims against their ownership of a property, fell along with residential sales. Costs rose as defaults and foreclosures led to title searches that unearthed ownership disputes.

Residential sales are expected to continue falling this year. The Mortgage Bankers Assn. said Monday that sales of previously owned homes probably would drop to an 11-year low of 4.94 million from 5.68 million in 2007.

First American will report a fourth-quarter loss on severance expenses, legal reserves and insurance claims from the California wildfires, the company said in a separate statement. The loss isn’t expected to exceed $50 million.

The company cut 1,100 jobs in the fourth quarter, Chief Operating Officer Dennis Gilmore said.

First American earned $104 million, or $1.06 a share, in the fourth quarter of 2006. About three-quarters of the company’s revenue comes from the insurance units.

Gilmore will become chief executive of the insurance company. Frank McMahon, First American’s vice chairman and chief financial officer, will be CEO of the financial data company. Chairman Parker Kennedy will be executive chairman of both companies.

First American shares rose $2.08 to $31.44 on Tuesday.