Acquisitions

6 Months Ended

Jun. 30, 2020

F&G

On June 1, 2020, we acquired 100% of the outstanding equity of F&G for approximately $2.7 billion. In connection with the Merger, we issued approximately 24 million shares of FNF common stock and paid approximately $1.8 billion in cash to former holders of F&G ordinary and preferred shares. Additionally, we accrued $132 million as a liability to the Kingstown Dissenters, who are former owners of F&G common stock. For more information related to the Dissenting Shareholders, refer to Note H Commitments and Contingencies. At closing, all outstanding shares of F&G common stock, excluding shares associated with the liability to former owners, were converted into the right to receive the Merger Consideration (as defined in the Merger Agreement). Additionally, each outstanding F&G Option and F&G Phantom unit was cancelled and converted into options to purchase FNF common stock and phantom units denominated in FNF common stock, and each outstanding warrant to purchase F&G common stock was converted into the right to purchase and receive upon exercise $8.18 in cash and .0833 shares of FNF common stock. At closing, our subsidiaries' ownership of F&G common and preferred shares was converted into approximately 7 million shares of FNF common stock, which are reflected as treasury shares in the Condensed Consolidated Financial Statements as of June 30, 2020.

The initial purchase price is as follows (in millions):


Cash paid for outstanding F&G shares	$	1,803
Less: Cash Acquired	827
Net cash paid for F&G	976
Value of FNF share consideration	772
Value of outstanding converted equity awards attributed to services already rendered	28
Liability accrued to former owners of F&G common shares	132
Total net consideration paid	$	1,908

The acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations ("Topic 805").The purchase price has been allocated to F&G's assets acquired and liabilities assumed based on our best estimates of their fair values as of the acquisition date. Due to the close proximity in timing of the F&G acquisition and our filing of this Quarterly Report on Form 10-Q, the fair value of assets acquired and liabilities assumed represent a preliminary allocation as our evaluation of facts and circumstances available as of June 1, 2020 is ongoing. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired. Goodwill consists primarily of intangible assets that do not qualify for separate recognition. The goodwill recorded is not expected to be deductible for tax purposes, except for $16 million related to a prior F&G transaction.

Pursuant to Topic 805, the financial statements will not be retrospectively adjusted for any provisional amount changes that occur in subsequent periods. Rather, we will recognize any provisional adjustments as we obtain information not available as of the completion of this preliminary fair value calculation as determined within the measurement period. We will also be required to record, in the same period as the financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of any change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. We expect to finalize the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.

The following table summarizes the preliminary fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (dollars in millions):


	Fair Value
Fixed maturity securities	$	22,389
Preferred securities	876
Equity securities	52
Derivative instruments	313
Mortgage loans	1,754
Investments in unconsolidated affiliates	1,019
Other long-term investments	430
Short-term investments	37

Trade and notes receivable	1
Reinsurance recoverable	3,241

Goodwill	1,725
Prepaid expenses and other assets	352
Lease assets	8
Other intangible assets	2,139
Assets of discontinued operations	2,392
Total assets acquired	36,728

Contractholder funds	26,454
Future policy benefits	4,106
Accounts payable and accrued liabilities	858
Notes payable	589
Funds withheld for reinsurance liabilities	816
Lease liabilities	9
Income taxes payable	(26)
Deferred tax liability	(254)
Liabilities of discontinued operations	2,268
Total liabilities assumed	34,820



Net assets acquired	$	1,908

The gross carrying value and weighted average estimated useful lives of Other intangible assets acquired in the F&G acquisition consist of the following (dollars in millions):


	Gross Carrying Value		Weighted Average Estimated Useful Life (in years)

Other intangible assets:

Value of business acquired	$	1,890	Various
Value of distribution network acquired	185		15
Trademarks and licenses	43		10
Software	21		2
Total Other intangible assets	2,139

Pro-forma Financial Results

F&G's revenues and net loss of $124 million and $39 million, respectively, are included in the Condensed Consolidated Statements of Earnings for the period from June 1, 2020 through June 30, 2020. For comparative purposes, selected unaudited pro-forma consolidated results of operations of FNF for the three and six-month periods ending June 30, 2020 and 2019 are presented below. Pro-forma results presented assume the consolidation of F&G occurred as of the beginning of the respective 2019 periods.




	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
	(In millions)
Total revenues	$	2,770	$	2,596	$	4,151	$	4,848
Net earnings attributable to FNF common shareholders	306		271		54		581

Amounts reflect certain pro forma adjustments to revenue and net earnings that were directly attributable to the acquisition, and for the elimination of historical activity between FNF and F&G prior to the acquisition. These adjustments include the following:

•elimination of valuation changes on FNF's investment in F&G common and preferred shares prior to the acquisition;

•elimination of dividends received by FNF related to its holdings of F&G's common and preferred shares prior to the acquisition

•elimination of advisory fees F&G paid to FNF

•elimination of transaction costs paid by F&G

•adjustment to record interest expense related to financing associated with the acquisition

•adjustment to reflect the elimination of historical amortization of F&G intangibles and the additional amortization of F&G intangibles measured at fair value as of the acquisition date

•adjustment to reflect the prospective reclassification from accumulated other comprehensive earnings of the unrealized gains on available-for-sale securities to a premium which will be amortized into income based on the expected life of the investment securities