wanted to buy

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Neither company was able to return a call to GlobeSt.com in timefor publication. Both issued terse statements announcing the dealis off.

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"We are disappointed with Fidelity's decision," LandAmericaChairman and Chief Executive Officer Theodore L. Chandler, Jr. saysin a prepared statement. "However, our attention remains focused onstrengthening LandAmerica's business and exploring strategicalternatives during these incredibly difficult economic times."

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LandAmerica's stock dropped dramatically on the news--by some88%--to 53 cents. If the acquisition had gone through, a Fidelitysubsidiary would have established a $30-million credit facility forLandAmerica. Now the company is facing "serious liquidityconstraints," according to Fitch Ratings, which has downgraded theInsurer Financial Strength ratings of LandAmerica Financial Group'sinsurance subsidiaries to 'BB' from 'BBB+'. Fitch has alsodowngraded the Issuer Default Rating of LandAmerica to 'B' from'BBB-' and placed it and its subsidiaries on Rating WatchNegative.

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LandAmerica is going to need a buyer with enough cash to fillits short-term liquidity needs, which are substantial, judging fromFitch's analysis. The rating agency notes that LandAmerica hasapproximately $290-million invested in auction-rate securities aspart of its 1031 exchange business that cannot be accessed rightnow. Also, LandAmerica is unable to access the $50-millionremaining under its bank line of credit, Fitch says. Fitch alsoreports that the company's title insurance subsidiaries'consolidated statutory surplus has dropped to $300 million as ofSept. 30, 2008, from $426 million at year-end 2007. Surplus hasbeen depleted by operating losses and dividends to the holdingcompany and consequently, Fitch's estimate of LandAmerica'srisk-adjusted capital ratio is substantially below 100%.

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For these reasons, A.M. Best did not care for the acquisitionfrom Fidelity's perspective when it was first announced. In aresearch note issued at the time of the deal's announcement, A.M.Best noted that the acquisition would require "a significanttransfer of liquidity from Fidelity's title insurance subsidiariesto Land America's leading statutory entities in order to partiallypay down Land America's outstanding debt, which may result inadversely impacting the financial strength and risk-adjustedcapitalization of Fidelity's title insurance members. Additionally,the acquisition is expected to carry execution risks of integratingtwo large insurance organizations."

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It is that latter point--the execution risks--that may well havederailed the deal, A.M. Best rating analyst Neil Das Gupta, tellsGlobeSt.com, adding that he cannot say with any certainty."Fidelity was looking for savings of about $150 million from thedeal," he continues. "I don't know if they realized that theycouldn't achieve that, but it was part of the due diligence." Forwhatever reason, he says, Fidelity decided the deal wouldn't bringenough value to the table.

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