UWM Holdings will likely have to increase its offer to get the agreed to purchase of Two Harbors over the finish line.

Two Harbors announced before the markets opened on March 19 it had received an unsolicited proposal to purchase all of the company's stock at $10.77 per share, above its March 18 closing price of $9.52.

An ad hoc committee of Two Harbor's board determined the unsolicited offer could reasonably be expected to lead to a "company superior proposal," it said in a press release. It has not yet made a determination this is the case, the release continued.

The Two Harbor's board still supports the agreement with UWM.

National Mortgage News reached out to UWM for comments about this latest development.

If the bid is accepted, the unnamed company would pay the deal's $24.5 million termination fee.

"We estimate that the new cash bid is roughly in line with [tangible book value] or modestly below," Bose George of Keefe,Bruyeette and Woods wrote in a new research note. "We think a higher bid from UWMC is probable since the transaction would be still be accretive to TWO even at the original purchase price ($11.94), although we estimate that accretion would fall to around 5% from 10%."

Why the new bidder emerged

Two Harbors adjourned the special meeting that was to approve the deal on March 16 to March 24 in order to solicit more proxies.

But the first sign the deal might be in trouble was on March 9, when UWM updated its revenue guidance for the first quarter and the full year. At the time, Eric Hagen, an analyst at BTIG said afterwards that he was still confident the deal would happen, but stock price volatility reduced the odds.

Two Harbors owns mortgage servicer RoundPoint and acquiring the organization will further UWM's efforts of bringing the servicing function in house. Another reason for the deal was it would increase the float of UWM's common stock by 93%. In 2021, UWM's Chairman and CEO Mat Ishbia, who is also its controlling shareholder, tried a secondary stock offering of his holdings with the same aim but the markets reacted negatively, so it was cancelled.

UWM opened at $3.75 per share on Thursday morning after the news was released, up 6 cents. But it quickly turned down and was at a new 52-week low of $3.46 around 10:20 a.m.

Two Harbors, on the other hand, opened $1 higher at $10.53 per share. Its high on the day so far is $10.73, although by 10:45 it was back to $10.64.