The company that holds Washington Mutual's legacy reinsurance business has agreed to purchase a controlling interest in Nationstar Mortgage and invest in its growth.
WMIH Corp. would pay for the acquisition of Nationstar and its Mr. Cooper brand with, among other things, $1.2 billion in cash and an exchange of stock. It also would refinance $1.9 billion of Nationstar debt. The stock exchange has an anticipated value of $702 million, and WMIH has secured $2.75 billion in financing commitments for the transaction.
Nationstar's operations, employee base and name would remain unchanged as part of the new company. But the new company would trade, at least initially, under the ticker symbol WMIH. WMIH is owned by a group of institutional holders, the largest of which is investment firm KKR. KKR owns 24% of WMIH's voting shares.
"We look forward to working with Nationstar’s talented team to build on the company's strong foundation to drive growth, expand the platform and create shareholder value," Bill Gallagher, CEO of WMIH, said in a press release. "The combined company is expected to benefit from WMIH's platform and financial attributes, which are expected to enhance free cash flow available to support business growth and be accretive to shareholders' equity."
Shareholder approvals at both companies are still pending, but Nationstar's and WMIH's boards have approved the transaction, as has Nationstar's majority owner, an entity with ties to Fortress Investment Group. Japan's SoftBank Group acquired Fortress late last year.
The board of the new combined company would be comprised of three WMIH representatives and four representatives from Nationstar. Nationstar's senior executives, including Chairman and CEO Jay Bray, would continue to lead the new company.
"I am passionately committed to continuing and accelerating our growth and investment as a leader in our industry, leveraging our best-in-class integrated servicing and originations platform," said Bray, in the two companies' joint press release.
"The Nationstar board and management team have taken considerable steps to make homeownership simpler and more rewarding for our 3 million customers and we look forward to identifying additional opportunities to enhance value for the combined company’s shareholders."
Nationstar shareholders can receive $18 in cash or a little less than 12.78 shares of WMIH common stock for each share of Nationstar common stock they own, subject to proration that ensures 32% of the total outstanding shares are exchanged.
Upon closing, Nationstar shareholders will own approximately 36% of the combined company and WMIH shareholders will own 64%. At closing, all outstanding WMIH Series B preferred stock and outstanding warrants to purchase shares of common stock will be converted into WMIH common stock.
Investors in WMIH's Series B 5% convertible preferred stock will receive approximately 444 million shares of common stock after the Series B stock goes through the mandatory conversion at a fixed price of $1.35 per share.
The Series B stockholders would receive an estimated 21 million shares of common stock between the signing and closing of the deal, and upon closing they would also receive a special distribution of 11 million shares of common stock.
WMIH's resources include about $600 million in cash and cash equivalents. It also has federal net operating loss carry forwards totaling an estimated $6 billion. Those carry forwards have no annual use limitation. They begin expiring in 2032.