UWM doubles down on criticism of Two Harbor's management

UWM Holdings intensified its attack on Two Harbors' management after the markets closed on Friday, following a full day of trading after the real estate investment trust ditched them for a $10.80 per share all-cash deal from CrossCountry.

The unsolicited bid from CrossCountry was made after UWM failed to secure the votes from Two Harbors' shareholders to approve its all-stock transaction of 2.33 shares for each share of its target's.

"The same team that had to settle a $375 million lawsuit this past summer is at it again," the updated UWM statement said. "TWO's decision appears to be driven more by ego, than by sound judgment."

The settlement comment refers to the agreement Two Harbors reached with its former external manager Pine River after the real estate investment trust terminated the management agreement one month early, allegedly for cause.

CrossCountry originally offered $10.70 per share. A second bid, also all-cash, from an undisclosed party was made for $10.75 per share.

Meanwhile, the value of the UWM deal for TWO declined in the weeks after it was signed. Because the agreement was structured as a fixed share-exchange ratio rather than a fixed dollar amount, the consideration offered to Two Harbors shareholders fell alongside UWM's stock price — from $4.85 per share on Dec. 17 to $3.56 per share on March 13, prior to the scheduled Two Harbors shareholder meeting.  

On March 27, when the new transaction with CrossCountry was announced, UWM opened at $3.53 per share, but closed at $3.42.

Monday morning saw it regain some ground, to open at $3.47 per share. For UWM investors, the deal was seen as a way to increase the stock's float. Float is defined as how many of a company's shares are available to be publicly traded.

"It matters to investors because it shows how many shares can actually circulate in the market, influencing trading activity and the stability of a stock's price," according to an Investopedia article.

In the case of UWM, the vast majority of its shares are under the control of Mat Ishbia, its chairman, CEO and president. In the past the company has tried to increase the float, for example through a secondary offering in November 2021 which was ultimately cancelled.

The updated UWM statement also gave some more of its rationale for pursuing Two Harbors in the first place.

"The deal for us was a strategy to acquire their servicing book, not their operations, as ultimately there are no operational efficiencies to gain — UWMs operations are best in class," it said.

Two Harbors is the parent company of RoundPoint.

But the final portion resumed some of the same tone Ishbia has taken on earnings calls about the company's competition.

"Unlike TWO's business, which is effectively a melting ice cube, we are in growth mode and will continue to be the market leader for the wholesale channel in support of our broker clients and team members," the statement said.

Two Harbors referred a request for comment to the March 27 press release issued in conjunction with CrossCountry.

The release said the transaction "creates a fully integrated mortgage company. Together, the platform spans the full mortgage customer lifecycle — from origination through servicing — driving higher customer retention, recurring revenue streams, and lower customer acquisition costs."

Two Harbors closed Friday's trading at $11.22 per share. It opened Monday at $11.25.