FTC sues to stop ICE-Black Knight merger, says it would “drive up costs”

The Federal Trade Commission (FTC) on Thursday sued to block the proposed $13 billion merger between Intercontinental Exchange Inc. and rival mortgage software firm Black Knight.

The federal agency said the merger would give ICE and Black Knight a significant position in the market for loan origination software, which it could use to push customers to its other mortgage services and products instead of rivals’ offerings, the agency argued. It also claimed a merger would stifle innovation and reduce lenders’ choices for both origination and mortgage servicing.

The FTC voted 4-0 to file the complaint in the agency’s in-house court.

“For many Americans, buying a home is an important investment toward building financial security,” said Patty Brink, the acting deputy director of the FTC’s Bureau of Competition. “This deal would reduce competition in key areas of the mortgage process, ultimately raising costs for lenders and homebuyers. The FTC will intervene when illegal mergers risk harming competition in such critical markets.”

The move, which was widely expected, sets the specter for a legal challenge between Atlanta-based ICE and the federal government.

“ICE is fully confident in our position and look forward to presenting it in court,” the company said in a statement Thursday. “While that litigation plays out, the company is continuing its work toward closing the acquisition, which it expects to complete in the third or fourth quarter of this year.”

ICE and Black Knight this week announced that they had agreed to sell Empower, Black Knight’s LOS, to Canadian software company Constellation Software, though the deal is contingent on the merger going through. The two companies also amended their deal terms to reduce the valuation of Black Knight to $11.8 billion, about 11% lower than the valuation when the agreement was announced last year. 

Empower commands about 10 to 15% market share, a distant second to ICE’s Encompass LOS, which is estimated to have about 40 to 45% market share.

Regarding that proposal to sell Empower, the FTC said it “does not address the anticompetitive effects in the market for PPE software and would not replace the intense competition between ICE and Black Knight in the LOS market.”

ICE is the owner of the New York Stock Exchange and has looked to diversify its business through mortgage.

“We are disappointed that the FTC has filed litigation to prevent ICE from closing our acquisition of Black Knight,” Tim Bowler, president of ICE Mortgage Technology, said in a statement. “The proposed acquisition can bring to life a true end-to-end solution for the mortgage industry, benefitting aspiring and current homeowners across the United States.”

Scott Olsen, the head of the Community Home Lenders Association, a trade group for smaller mortgage lenders, cheered the FTC’s lawsuit.

“CHLA strongly commends the FTC for taking legal action to block the purchase of Black Knight by ICE,  confirming what we have said all along – which is that the purchase would ‘harm competition and lead to higher costs for lenders and homebuyers,” he said in a statement.