UWM gets one more shot at Two Harbors, but as a cash deal only

Two Harbors Investment, temporarily free of a non-solicitation clause in its agreement with CrossCountry Mortgage, is now willing to engage with UWM Holdings, but only if the latter drops the stock portion of its bid.

CrossCountry has agreed to waive the non-solicitation clause through the close of business on Friday, June 12, Two Harbors announced before the markets opened Monday morning.

In addition, the special meeting to vote on the CrossCountry agreement has been postponed for a third time, until June 23. It had been scheduled to take place on June 11.

"The TWO Board has been clear in what it requires: all cash, to all stockholders, no stock component," the announcement said. "Fully committed financing to cover the entire $12.50 per share in cash, including all termination and transaction fees, along with definitive documents."

UWM's common stock price remains near all-time lows. It opened following the June 8 announcement at $2.61 per share, 2 cents higher than its prior close.

Two Harbors opened at $12.39 per share, 5 cents higher over the end of the day on Friday.

UWM offered $12.50 per share as a cash alternative to its default offer of 2.3328 shares of its common stock for each share of Two Harbors. At Monday's opening price for UWM, the stock consideration is worth about $6.09 per share.

When UWM first came to an agreement with Two Harbors at that same stock ratio consideration, the deal was worth $11.94 per share.

In a June 4 letter to Two Harbor shareholders released after the market closed, UWM indicated it was willing to make adjustments to the either/or nature of its offer. It suggested smaller Two Harbors stockholders who hold less than an unspecified maximum number of shares would receive whichever is the higher value between cash or its shares.

Even as Two Harbors is showing a willingness to negotiate with UWM, it is still dissing the company in its latest statement, going tit for tat. It pointed to comments from Keefe, Bruyette & Woods in a June 4 note saying a transaction between the two is no longer compelling if it is for cash.

"This explains why UWMC still has not put forth an all-cash offer and, instead, keeps inventing convoluted proposal structures that default to stock: because it appears to be a critical feature of its offer. KBW also noted that a UWMC dividend cut is probable, given that dividends currently exceed earnings," the Two Harbors press release said.

The REIT added its board, to remain consistent with its fiduciary duties, could not recommend a deal where any of its stockholders receive an equity interest in UWM because the latter is "a controlled company whose stock continues to decline and whose credit risk continues to increase.

In response to comments from Mat Ishbia, UWM's chairman, president and CEO about supposedly how little value outside of its RoundPoint mortgage servicing business Two Harbors had, the REIT shot back that if its board had known about UWM's financial condition and the value of its stock, it would not have agreed to an all-stock deal in December either.

When the deal between UWM and Two Harbors was announced in December, Ishbia controlled 83% of the company's equity. Had the transaction gone as planned, this would have cut it to 71%. This stake is smaller now, following a Rule 10b5-1 trading plan which ended on May 8. An entity controlled by Ishbia, SFS Holdings, now owns 1.3 billion shares of UWM stock.

CrossCountry last issued a public statement on May 28 saying its $12 per share offer, along with a pro-rated stub dividend is its "best and final offer to TWO stockholders." It will not purse a deal at all costs.

National Mortgage News contacted both UWM and CrossCountry for a comment.