The board of Two Harbors Investment Corp. (TWO) has unanimously rejected an unsolicited acquisition offer from the parent company of United Wholesale Mortgage (UWM), delivering a resounding rebuff to the lender’s bid to acquire TWO’s coveted book of mortgage servicing rights.
In spurning UWM’s latest $12 per share bid, the TWO board reaffirmed its support for the $11.30 per share offer from CrossCountry Mortgage (CCM) it had accepted on April 28.
Despite the UWM offer being 70 cents higher than CCM’s on a per-share basis, the Two Harbors board cited several concerns with the Michigan-based lender’s proposal.
“It carries financing, closing, business and credibility risks that the Board is unwilling to accept and ultimately delivers a lower overall consideration to TWO stockholders,” the company stated in a press release Monday.
UWM’s $12 per share cash offer also came with an option whereby Two Harbors shareholders could opt to receive 2.3328 shares of UWM Holding Corp. (UWMC) common stock for every share of TWO stock they owned.
But based on UWMC’s current share price — which has fallen about 17% year to date — TWO estimates “the blended value of UWMC’s proposal (approximately $10.96 to $11.13 per share) is below CCM’s certain $11.30 all-cash price.”
The Two Harbors release also called out “contradictory public statements” from UWM, which it claims “undermine its credibility and call into question its intent and rationale for entering a transaction in which it expects no synergies and no meaningful increase in public float.”
On March 27, when TWO accepted a $10.80 bid from CCM and terminated its prior all-stock deal with UWM, the wholesale lender called TWO’s business a “melting ice cube” and said its proposal was “a strategy to acquire their servicing book, not their operations, as ultimately there are no operational efficiencies to gain.”
But Two Harbors says those comments contradict UWM’s press release from Dec. 17 announcing the initial deal, in which it indicated the acquisition could create up to $150 million in cost and revenue synergies on an annual basis.
In a response issued Monday afternoon, UWM called its offer “clearly superior,” accusing the TWO board of “contorting itself with illogical arguments to suggest otherwise.”
“The actions of the TWO board are egregious and demonstrate it does not deserve TWO stockholder support for an inferior deal,” UWM stated, adding that it is “assessing its options to make sure TWO stockholders are able to obtain the value they deserve.”
The TWO press release expressed skepticism that UWM could close the transaction within its stated time frame of two to three months, suggesting that would only be feasible if UWM “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.”
Two Harbors also criticized the offer structure, in which the default for TWO stockholders who do not actively elect the cash offer would be to receive UWMC stock. In contrast, TWO noted that the accepted CCM proposal “delivers $11.30 per share in certain, immediate, all-cash consideration to every TWO stockholder.”
TWO raised further concerns about the UWM offer’s financing structure, claiming $1.3 billion in what UWM called “committed” bridge financing from Mizuho Bank is conditional and is still subject to Mizuho’s due diligence. Additionally, Two Harbors claimed the UWM proposal overstated the company’s cash on hand, saying it did not reflect a $170 million dividend paid on April 9.
UWM responded to the financing concerns, calling Mizuho’s stipulations “customary market standard closing conditions.”
“But to avoid any doubt, Mizuho has agreed to remove the customary due diligence condition that the TWO Board raised concerns about,” the UWM statement continued. “This is more than can be said for CrossCountry’s financing, which still contains scant details even in the most recent announcement and the Board deliberately fails to provide any details about it for obvious reasons.”
—–
This story has been updated with UWM’s response.
