CrossCountry Mortgage has put out its own response to the latest statements from UWM Holdings regarding the financing conditions of their respective offers for Two Harbors.
UWM has made
In turn, UWM is taking its case directly to Two Harbors shareholders.
UWM's comments after Two Harbors' latest rejection
After the stock market closed on May 4, UWM issued a press release addressing the Two Harbors comments.
Two Harbors' interpretation of its offer doesn't reflect the underlying math, by using "illogical arguments to suggest otherwise, preventing TWO stockholders from even the opportunity to receive significantly higher value," the statement said.
Addressing Two Harbors' argument regarding deal financing, UWM said the Mizuho facility has no ratings trigger, no borrowing-base test and no market contingency. Furthermore, Mizuho has agreed to remove what UWM called the customary due diligence condition, which Two Harbors raised in its statement.
"This is more than can be said for CrossCountry's financing, which still contains scant details even in the most recent announcement and the Board deliberately fails to provide any details about it for obvious reasons," the UWM press release said.
CrossCountry's response to UWM's contentions
In response before the market opened on May 5, CrossCountry refuted UWM's comments on its financing.
"CCM originally entered into the merger agreement with a $2.0 billion secured financing commitment," the statement said. "On top of that existing commitment, CCM has now obtained an additional commitment for a $1.4 billion unsecured facility from Citi, bringing CCM's total financing commitments to $3.4 billion." This provides CrossCountry with certainty of being able to fund its offer, it claimed.
"Our financing package is not dependent on collateral value, borrowing-base tests, or market conditions as UWM has speculated," the CrossCountry response said. "In practical terms, UWM does not have committed financing equivalent to CCM's signed agreement."
CrossCountry also pointed to its history as an acquirer of mortgage companies. While the battle for Two Harbors was just starting, and before CrossCountry was identified as the unsolicited suitor,
For UWM, this is the first ever attempt at an acquisition.
CrossCountry said it already has approximately half of the 53 approvals, meaning it is likely to meet the August proposed closing date. UWM would need to start the process from scratch.
"To put it plainly: no stockholder should trade the certainty of a CrossCountry closing for the hope that UWM might someday obtain the approvals it needs," the statement said.
CrossCountry also reiterated several arguments Two Harbors made in its announcement after it rejected the UWM bid.
An analyst's take on the back and forth
Eric Hagen of BTIG, in his latest industry commentary, gave what he termed his 2 cents on the takeover battle.
Two Harbors' net asset value is around $10.50 per share, which means little incremental upside around current spread levels, Hagen said. More than half of Two Harbors' tangible equity supports the $2.4 billion market value of its mortgage servicing rights. Expectations are that UWM would sell Two Harbors' mortgage-backed securities portfolio and keep the MSRs.
"The drag/underperformance of UWMC's stock has mostly been the result of a noisy quarter of mixed guidance and messaging, as opposed to investors questioning the fundamental merit of the merger itself, which remains geared around building scale and optimizing a future recapture opportunity," Hagen said. "That said, it's getting harder to rationalize a much higher deal valuation."
He pointed to the Rocket-Mr. Cooper transaction. At two times Mr. Cooper's tangible book value, this valuation "deserves to represent the upper-end of the valuation benchmark (for now)," Hagen said.
On Tuesday morning, after the exchange of statements, UWM opened at $3.55 per share, 1 cent higher than Monday's close, but by 11 a.m. eastern, was down to $3.46.
Two Harbors opened at $12.30 per share, up 7 cents from the prior close. As of 11 a.m., it was trading at $12.30 per share.
