Two Harbors Investment Corp. escalated its challenge to UWM Holdings Corp. on Monday, again postponing a shareholder vote and effectively daring the wholesale lender to replace its stock-and-cash proposal with a fully financed, all-cash bid.
The mortgage REIT, which owns RoundPoint Mortgage Servicing, said it remains committed to CrossCountry Mortgage's pending $12-per-share cash acquisition but is willing to engage directly with UWM if the lender can provide definitive financing for an offer that contains no stock component.
Why This Matters
This is the first time the battle has stopped being about who is offering the higher price and started being about who can actually deliver cash.
Until now, UWM has promoted a $12.50-per-share proposal that allows shareholders to elect cash or stock. Two Harbors has repeatedly objected to the structure because shareholders who fail to make a timely election would receive UWM stock by default.
Monday's release goes further, making clear that the board will not support any transaction that leaves shareholders owning UWM stock.
Instead, Two Harbors said it wants one thing: $12.50 in cash for every shareholder, backed by committed financing and definitive transaction documents.
The latest confrontation is rooted in the collapse of the companies' original merger agreement.
Two Harbors agreed in December to be acquired by UWM in a stock transaction valued at approximately $11.94 per share. By March, after UWMC shares fell sharply, the deal's implied value had dropped below $8.25 per share. Proxy adviser ISS recommended shareholders reject the transaction, and Two Harbors ultimately terminated the agreement in favor of CrossCountry Mortgage's competing all-cash offer.
Two Harbors noted that UWM's current proposal uses the same 2.3328-share exchange ratio that was included in the December agreement, arguing that the risks associated with receiving UWM stock have increased as the company's share price has declined.
Two Harbors also highlighted a recent comment from UWM CEO Mat Ishbia, who said on a recent earnings call that had he known then what he knows now about Two Harbors, "I wouldn't have pursued it."
The board used the remark to reinforce its argument that circumstances have changed materially since the companies first agreed to merge in December.
KBW Raises New Questions
Perhaps the most notable new development came from Two Harbors' decision to highlight a June 4 research note from Keefe, Bruyette & Woods.
According to Two Harbors, KBW concluded that an acquisition of Two Harbors "no longer appears compelling if it's largely for cash" and that any upside would come only if some shareholders default into receiving UWM stock.
The analyst commentary cuts directly to the core dispute.
Two Harbors argues that the default stock election is not merely a technical feature of UWM's proposal but a critical component of its economics. If that is true, eliminating the stock component could make the acquisition significantly more expensive for UWM to complete.
CCM Opens The Door
CrossCountry has agreed to waive non-solicitation provisions in its merger agreement through June 12, allowing direct discussions between Two Harbors and UWM.
The move removes one of the procedural barriers UWM previously cited and leaves the focus squarely on whether it can produce the financing package Two Harbors is demanding.
The company stressed that it has not determined UWM's proposal to be superior to CrossCountry's offer and continues to recommend shareholders vote for the CCM transaction.
Pressure Shifts To UWM
The postponement of the shareholder vote until June 23 gives UWM additional time to respond.
But it also puts the spotlight on a question that has hovered over the bidding war since UWM raised its proposal to $12.50 per share last month: Can the company finance a true all-cash acquisition?
Two Harbors' message Monday was unmistakable: if UWM believes its proposal is superior, the company now has an opportunity to prove it by replacing its stock election structure with a fully financed cash offer.
