Two Harbors Investment Corp. has once again adjourned its special meeting of stockholders, giving the MSR-focused real estate investment trust more time to solicit votes for its proposed all-cash sale to an affiliate of CrossCountry Mortgage (CCM).
Two Harbors and CCM entered into a definitive merger agreement on March 27. Negotiations with CCM produced two price increases, from $10.80 to $11.30 and then to $12 per share, amid a competing offer from UWM Holdings Corp. (UWMC).
“Given the lack of votes, it is possible that CCM will need to increase its bid from the current level,” analysts at Keefe, Bruyette & Woods said in a flash note.
The special meeting, originally scheduled for May 19 and then moved to May 28, will now reconvene June 11 at 10 a.m. ET. The Two Harbors board is urging stockholders to vote in favor of the transaction with CrossCountry Intermediate Holdco LLC.
According to Two Harbors, the $12-per-share offer represents a 21% premium to the REIT’s unaffected share price and a 19% premium to its fully diluted tangible book value. Common stockholders also would receive a pro-rated stub dividend for the quarter in which the transaction closes, providing incremental cash beyond the $12-per-share merger consideration.
Holders of Two Harbors preferred stock would have their shares redeemed at $25 per share plus accumulated and unpaid dividends.
UWMC’s most recent proposal is $12.50 per share in cash or 2.3328 shares of UWMC stock. But the Two Harbors board said that, based on UWMC’s May 27 closing price, that default stock consideration would be worth about $7.23 per Two Harbors share. It estimates that 25% to 30% of its stockholders could be defaulted into stock at that valuation.
The company said its board, working with “numerous independent legal and financial advisors,” engaged with UWMC throughout a lengthy, competitive process.
According to Two Harbors, the board identified “core deficiencies” in UWMC’s proposals, including deal structure, certainty of closing, regulatory process, and risks around employee attrition and business continuity. The company said UWMC has not addressed these issues.
By contrast, the CCM offer would automatically deliver $12 per share in cash, plus a stub dividend, to all stockholders with no election required, Two Harbors said.
The company said the CCM deal is fully financed with no financing contingency. The parties received early termination of the Hart-Scott-Rodino waiting period on May 21, and 41 of 53 required state and agency regulatory approvals have been obtained.
In press release issued Thursday shortly after the merger vote was delayed, CCM indicated it would not be raising its price again while reaffirming its commitment to complete the acquisition.
“CCM’s $12.00 per share offer, together with the pro-rated stub dividend, is CCM’s best and final offer to TWO stockholders,” the release stated. “This represents the highest premium paid for a mortgage-REIT. CCM will not pursue a deal at all costs; there are other strategic alternatives available.”
Stockholders who previously voted in favor of the CCM deal do not need to take additional action.
