A shareholder of Two Harbors Investment Corp. has filed a federal lawsuit seeking to block the company’s proposed sale to CrossCountry Mortgage, alleging investors are being asked to approve a $10.80-per-share deal without enough information — despite earlier proposals that, according to the complaint, reached as high as $15 per share.
The suit, filed April 17 in the U.S. District Court for the Northern District of Illinois, was brought by plaintiff Michael Koblentz against Two Harbors and certain members of its board of directors. It seeks to delay the transaction pending additional disclosures and requests damages if the deal is completed.
The case centers on a March 27 merger agreement under which CrossCountry, through a subsidiary, would acquire the mortgage REIT for $10.80 per share in cash.
Koblentz alleges the company’s preliminary proxy statement, filed with the U.S. Securities and Exchange Commission on April 10, omits material information shareholders need to evaluate the deal, particularly disclosures related to the financial analyses performed by the company’s advisors and the assumptions underlying those analyses. The complaint alleges “the Proxy Statement is materially incomplete and misleading.”
The merger agreement includes a provision requiring Two Harbors to pay CrossCountry a $25.4 million termination fee if the transaction is not completed, reimbursing CrossCountry for the fee it paid to United Wholesale Mortgage (UWM) after the earlier deal was canceled. The complaint describes these as “preclusive” deal protections, arguing they limit the likelihood of competing bids.
Beyond the deal structure, the complaint raises questions about the sale process itself. According to the filing, earlier proposals included an offer between $14.25 and $15.00 per share — well above the current deal price.
It also points to stock trades by senior executives, including CEO William Greenberg, made under a Rule 10b5-1 plan shortly after the announcement of the company’s prior merger with UWM, and alleges the proxy does not disclose whether those transactions played a role in the timing of the company’s decision to pursue strategic alternatives.
The filing further alleges gaps in disclosure around the company’s financial advisors, including the identity and compensation of an earlier unnamed advisor, as well as the scope of services and fees paid to Houlihan Lokey. It also challenges the valuation analyses supporting the deal, alleging the proxy omits certain projections, assumptions, and implied valuation details that were disclosed with the prior UWM transaction.
At issue is the upcoming shareholder vote on the acquisition. As presented, the complaint alleges investors lack the information needed to “make a fully and fairly informed determination as to how to vote.”
The plaintiff is seeking to enjoin the transaction unless additional disclosures are made. If the deal is completed, the complaint seeks damages.
The lawsuit alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 14a-9, which governs proxy disclosures.
