ICE’s Black Knight acquisition nears resolution of antitrust issues

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Intercontinental Exchange’s planned acquisition of mortgage tech provider Black Knight is closer to receiving a green light from antitrust regulators now that Black Knight’s Empower loan origination system and Optimal Blue division have been stripped from the deal.

Citing “significant progress” in negotiations, attorneys with the Federal Trade Commission, Black Knight and Intercontinental Exchange (ICE) on Monday asked a federal judge to temporarily dismiss a lawsuit the FTC filed in April seeking to stay the merger.

According to the joint stipulation for dismissal, the parties expect to reach an agreement by Aug. 25 that would spell out the terms under which the merger would be allowed. The agreement would consist of consent orders that would have to be approved by the FTC. If the agreement can’t be finalized, or if the FTC doesn’t sign off on the consent orders, the federal lawsuit could be revived, as it’s expected to be dismissed “without prejudice.”

In their attempts to satisfy antitrust regulators, Black Knight and Intercontinental Exchange (ICE) have carved off two big pieces of what was originally envisioned as a $13.1 billion deal when it was announced last year.

In March, the companies announced an agreement to sell Black Knight’s Empower loan origination system (LOS) to a competitor — Constellation Web Solutions, a subsidiary of Toronto-based Constellation Software Inc. ICE already offers a popular mortgage LOS, Encompass, thanks to its $11.4 billion acquisition of Ellie Mae in 2020.

Although terms of the Empower deal weren’t disclosed, ICE and Black Knight said an amended merger agreement valued Black Knight at $75 per share, or $11.7 billion — about $1.4 billion less than when the deal was originally announced.

But the plan to spin off Empower didn’t satisfy the FTC, which launched an administrative proceeding challenging ICE’s plan to acquire Black Knight. Fearing that the merger would close before they could present their arguments in the administrative proceeding, FTC attorneys also filed a federal lawsuit in April to stay the merger.

In dismissing Black Knight’s proposal to sell Empower loan origination system [LOS] as an antitrust remedy, the FTC noted that users would still rely on ancillary services provided by Black Knight and Optimal Blue.

“Software integration between a lender’s PPE and LOS enables and automates many of the PPE’s features for the lender. Black Knight’s Optimal Blue is the clear industry leader, serving lenders that originate as much as 40 percent of the nation’s residential mortgages each year,” FTC attorneys said in their March 9 complaint. “Second to Optimal Blue is its close competitor, ICE’s Encompass Product and Pricing Service PPE (“EPPS”), currently available only to lenders who use the Encompass LOS.”

Last month, Black Knight and ICE announced another concession — an agreement to sell Black Knight’s Optimal Blue business to a subsidiary of Constellation Software Inc. for $700 million.

The Optimal Blue deal, most of which would be financed by a $500 million promissory note issued by Constellation to Black Knight, is contingent on the Empower sale closing. The Empower sale is in turn contingent on ICE closing its acquisition of Black Knight. In other words, Black Knight is only willing to sell Empower and Optimal Blue if it paves the way for its merger with ICE.

“ICE and Black Knight are executing the [agreement to sell Optimal Blue] in order to address certain alleged antitrust concerns raised by the [FTC] in its lawsuits against ICE and Black Knight regarding the merger transactions, which remain ongoing,” the companies said in a July 17 regulatory filing.

Black Knight’s Optimal Blue division operates a marketplace platform that connects mortgage lenders and investors, offering tools that include product and pricing engines (PPE) for mortgage lenders and brokers and a cloud-based trading environment where investors can buy mortgages.

The proposal to sell Optimal Blue opened the door for the current negotiations between FTC attorneys, ICE and Black Knight.

“The planned sale of Optimal Blue is a significant development in this case and requires time for [FTC attorneys] to analyze the implications of the divestiture for the administrative proceedings, discuss a potential resolution of the pending matter with respondents, and advise the Commission,” FTC Senior Trial Counsel Abby Dennis wrote in a July 19 motion to put the brakes on the administrative proceeding.

The FTC administrative proceeding, which had been scheduled to begin on Sept. 25, has been withdrawn from adjudication until Aug. 16.

Shares in Black Knight, which have traded for as little as $53.15 in the last year, touched a new 52-week high of $74.93 Monday, before closing at $74.36, up 4 percent from Friday’s close. Shares in Intercontinental Exchange are also trading near their 52-week high, gaining 2 percent Monday to close at $116.07.

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