The Federal Trade Commission (FTC) has given the green light to the $11.7 billion merger deal between Intercontinental Exchange Inc. (ICE) and Black Knight, marking a significant development after months of antitrust concerns and legal disputes. This settlement paves the way for the merger to proceed, while also raising questions about potential impacts on competition and affordability in the mortgage industry.
Antitrust Concerns Settled: Merger Set to Proceed
Late on Friday, Intercontinental Exchange Inc. (ICE) and Black Knight announced a resolution with the Federal Trade Commission (FTC) regarding their proposed merger. The agreement follows a lawsuit filed by the FTC, which expressed antitrust concerns over ICE’s acquisition of Black Knight. This legal hurdle had previously put the merger on hold.
As part of the settlement, ICE is expected to finalize the acquisition of Black Knight on September 5. Additionally, the companies have committed to completing the divestiture of Black Knight’s loan origination system (LOS) Empower business and its product and pricing engine unit, Optimal Blue. These assets are to be sold to a subsidiary of Constellation Software Inc. within 20 days after the acquisition is complete.
Stockholder Decision Deadline and Background
With a deadline of September 1, Black Knight stockholders will need to choose between receiving cash or ICE stock in exchange for their shares, a pivotal decision in the context of this merger agreement.
The merger announcement was initially made by ICE in May 2022, but the process has faced regulatory scrutiny due to concerns raised by the FTC regarding potential anti-competitive practices. This merger is notable as both ICE and Black Knight are major players in the mortgage industry, commanding the two largest loan origination systems.
The FTC’s lawsuit alleged that this consolidation of power could lead to increased costs for lenders, which could then be transferred to homebuyers. The deal also raised concerns about reduced competition for product, pricing, and eligibility engines (PPEs), along with other related services that complement LOS functionality.
The Path to Resolution and Lingering Concerns
ICE and Black Knight’s decision to divest Black Knight’s Empower business and Optimal Blue was seen as a strategic move to address the antitrust concerns voiced by the FTC. This step signaled a potential willingness to cooperate to clear the regulatory path for the merger.
However, even with this settlement, lingering concerns about the merger’s impact on competition persist. Representative Maxine Waters, a ranking member of the House Committee on Financial Services, has expressed apprehensions. She pointed out that the merger could potentially affect mortgage loan pricing and mortgage servicing rights. Waters urged the FTC to ensure that adequate safeguards are in place to prevent additional pricing pressures, particularly in a housing market that is already grappling with consolidation and affordability challenges.
ICE’s Expanding Influence
In recent years, Intercontinental Exchange Inc. (ICE) has undertaken various strategic moves to diversify its business beyond its core exchange operations. Notably, this planned acquisition of Black Knight marks ICE’s second major mortgage technology deal. In 2020, ICE acquired Ellie Mae from Thoma Bravo for a staggering $11 billion, further solidifying its presence in the mortgage technology landscape.
While the FTC’s settlement allows the merger to move forward, the concerns and debates around competition and affordability in the mortgage market continue to echo. As the mortgage industry evolves, the impacts of these types of large-scale mergers on consumers, lenders, and the broader market will be closely observed and analyzed.