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ICE, Black Knight Officially Respond To FTC Bid To Block Merger

David Krechevsky
Mar 23, 2023

Companies say planned sale of Black Knight's Empower LOS resolves any antitrust concerns.

After the Federal Trade Commission said earlier this month it would seek to block the sale of Black Knight Inc. to Intercontinental Exchange Inc. (ICE), the two companies have responded by saying the deal will help, not harm, consumers.

When it announced on March 9 the filing of an administrative complaint seeking to block the merger, the FTC cited concerns over reduced competition in the mortgage industry.

“For many Americans, buying a home is an important investment toward building financial security,” said Patty Brink, acting deputy director of the 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.”

In separate “Answer and Defense” responses to the FTC filed Monday with the commission’s Office of Administrative Law Judges, both Black Knight and ICE say they have already taken steps to alleviate any antitrust concerns the commission may have about the merger.

“[T]he FTC is seeking to challenge a business combination that will never be,” ICE states in its response that the “majority” of the FTC complaint alleges anticompetitive harm that could arise if ICE were to acquire Black Knight’s Empower loan origination system (LOS).

The response notes that the FTC complaint “ignores Black Knight’s and ICE’s binding agreement to divest” the Empower LOS and other products to Constellation Web Solutions Inc., a subsidiary of Constellation Software Inc. 

Under terms of the deal, the sale of Empower is subject to ICE closing its acquisition of Black Knight, as well as to other "customary closing conditions," the companies said.

That deal was announced on March 7; the FTC announced its bid to block the merger two days later.

The loan origination systems are software used to manage the documents and workflow required to generate a mortgage. ICE owns the dominant LOS in the United States, called Encompass. Black Knight owns Empower, the second-largest LOS in the U.S. In its complaint, the FTC alleges the merger would allow ICE to raise costs to lenders, which would then be passed on to homebuyers.

The FTC said in its complaint that ICE’s Encompass LOS competes head-to-head with Black Knight’s Empower, and the two companies offer discounts and price concessions to win or protect business from each other. In addition to competing on price, ICE and Black Knight compete to attract LOS customers by offering the best and broadest array of mortgage-origination-related services integrated with their respective LOSs.

By eliminating Black Knight as a competitor, the deal would free ICE to aggressively raise the prices that it charges mortgage lenders for origination services, the FTC said. Internal ICE documents reflect its use of several “levers” to grow revenue, including price increases to Encompass customers, according to the FTC’s complaint.

ICE states in its response that Constellation’s acquisition of Empower would benefit competition.

“Constellation is a large, sophisticated public company with deep experience in the mortgage technology business, and the divestiture provides Constellation everything it needs to compete for the provision of LOS services,” ICE said. “Rather than engage with and consider the divestiture, the FTC rushed to file a complaint that fails to account for the divestiture’s effect. As will be shown in this proceeding, this divestiture preserves — if not enhances — competition in the LOS space.”

In its response, Black Knight said the proposed merger will “result in substantial procompetitive benefits, including merger-specific quality improvements, pricing efficiencies, increased access by U.S. consumers to residential mortgages, and other pro-competitive effects — all of which will directly benefit mortgage borrowers, existing and potential homeowners, and mortgage lenders in the United States.”

It states that the benefits “are tangible, and the efficiencies that will be realized by the proposed transaction will particularly benefit first-time homebuyers, who are often cash-constrained and account for a quarter to a third of U.S. home sales.”

It adds that the FTC is “wrong to claim that the transaction will cause any substantial lessening of competition in any relevant market.”

A date for a hearing on the FTC’s complaint has not yet been announced.

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