Board urges shareholders to get behind CCM agreement
Two Harbors Investment Corp. has doubled down on its support for a sale to CrossCountry Mortgage, rejecting a sweetened takeover proposal from UWM Holdings and urging shareholders to back the all-cash CrossCountry Mortgage (CCM) deal.
The New York-based public real estate investment trust said Monday that its board had unanimously reaffirmed the amended merger agreement with CrossCountry and again concluded that UWM’s revised, unsolicited bid is inferior on value and risk after a fresh review with independent advisers.
Shareholders are set to vote on the CrossCountry transaction at a special meeting scheduled for May 19.
Last week, UWM announced a new proposal with a headline value of $12.00 per share for Two Harbors stockholders. That contrasts with the CCM proposal, which would see stockholders receive $11.30 per share in cash – but Two Harbors estimates that 25% to 30% of its shareholder base could default into receiving stock rather than cash, pushing the effective blended value of the UWM offer to about $10.96 to $11.13 per share.
“In contrast to all Two stockholders receiving the same, certain all-cash value via the CCM transaction, the default of receiving UWM stock would be financially detrimental to many Two stockholders,” the company said.
Two Harbors also pointed to UWM’s leverage, ongoing capital drain and continued insider selling as factors that could pressure UWM’s share price between signing and closing, further undermining value for Two Harbors investors who end up with stock.
UWM has pointed to a $1.3 billion “committed” bridge facility from Mizuho Bank, but Two Harbors said that commitment remains subject to lender due diligence and allows the bank “in its sole and absolute discretion” to decline funding – which Two Harbors says is inconsistent with true committed financing.
The board also flagged concerns around UWM’s capita position. Fitch has twice revised UWM’s outlook in recent months, the board pointed out, citing rising corporate leverage and an average annual capital drain of roughly $535 million over the past three years, funded by increased leverage.
Two Harbors said UWM’s reported $402 million in cash as of March 31 does not reflect an approximately $170 million dividend paid on April 9, and questioned why that cash figure was not updated in UWM’s April proposals.
The company also said that it could be left operating independently with a depleted workforce if a UWM deal ultimately failed to close, and emphasized that the CCM transaction is already well advanced from a regulatory standpoint and said it offers clearer business-continuity assurances.
“UWMC asserts that it could close within two to three months of signing,” Two Harbors said. “This could only be true if UWMC intends to disregard state regulatory change of control approval requirements related to TWO’s mortgage servicing licenses, which at a minimum require 120 days’ advance notice.”
UWM has not yet responded to the statement. Mortgage Professional America has contacted UWM for comment.
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