UWM, Two Harbors CEOs clash in emails ahead of CCM deal vote

Executives at United Wholesale Mortgage (UWM) and Two Harbors Investment Corp. (TWO) raised the heat in an email exchange during their latest round of deal negotiations.

TWO mentioned that UWM could be trying to frustrate competitor CrossCountry Mortgage (CCM) in its efforts to acquire Two Harbors, while UWM alleged that TWO executives are prioritizing their own compensation in detriment of shareholders. The email exchange — included in filings with the Securities and Exchange Commission (SEC) — were between Bill Greenberg, president and CEO of Two Harbors, and Mat Ishbia, chairman and CEO of UWM.

A shareholder meeting to vote on the proposed CCM deal is scheduled for June 23, after being postponed once from May 28 and a second time from June 11. The email exchange shows that 73% of shareholders have submitted a vote, with 54% of them opposing the CCM merger — but since the information was disclosed June 15, it may have changed.

“Assuming these numbers are accurate, the disclosure suggests that Two might lack the shareholder votes needed to approve the CCM proposal,” analysts at Keefe, Bruyette & Woods (KBW) wrote on Monday.

Two Harbors, a New York-based real estate investment trust, continues to recommend that shareholders vote in favor of its existing agreement with CCM for $12 per share in cash, plus a stub dividend.

“TWO stockholders face a consequential choice at TWO’s Special Meeting: the certainty of $12.00 per share in cash under the CCM transaction or the potential significant decline in the value of TWO common stock if the transaction is not approved – with no actionable alternative on the table,” the company told shareholders in a letter on Monday. 

TWO stocks were trading at $12.28 on Monday afternoon, down 0.32%. 

In response, UWM released a statement a few hours later: “It is ironic that the Two Board bemoans the decline of its stock price, when they have a path to maximizing value for all TWO stockholders: true engagement with UWMC,” the statement read. 

UWM’s most recent offer was $12.50 per share in cash, or if a stockholder chooses, 2.3328 shares of UWMC stock.

‘Play for the media’

According to the SEC filings, on June 8, Greenberg invited Ishbia to New York to discuss an all-cash acquisition following a waiver of CCM’s non-solicitation provisions. Ishbia said he could not fly to New York and instead invited Greenberg to Pontiac, Michigan, or propose an online meeting later in the week.

Greenberg reminded him of the June 12 waiver deadline, but Ishbia made himself available only one day before it.

According to Two Harbors, during a June 11 call, Ishbia said he was not sure any proposal would be forthcoming and that he needed additional information about TWO’s financials. Greenberg said nothing material had changed and provided updates on spread performance, MSR values and prepayment speeds during the quarter.

Following the meeting, Ishbia wrote that UWM needed to understand “why” and how TWO wanted the offer adjusted, raising concerns that executive postures were tied to their roles.

“The fact that your shareholders can elect stock doesn’t make it worse,” Ishbia wrote. “I know you personally get paid out differently if stock is a component of the deal, but once again, that isn’t a good reason to not approve that deal.”

Ishbia offered to modify the exchange rate, default to cash rather than stock, or provide a “higher of” structure for “sleepy” shareholders, noting that UWM’s stock was lower. He blamed interest rates and the war in Iran. He also said concerns about whether UWM could fund an all-cash deal were “ridiculous and obviously just play for the media.”

Rejecting accusations

Greenberg responded by email, saying that he and Steve Kasnet — an independent director and chairman of the Two Harbors board — rejected accusations of “self-dealing” and suggestions they were focused on their own pay.

“Our Board’s ask for all-cash consideration is based on its fiduciary duties to all TWO stockholders — including those who would receive default consideration worth less than 50% of the headline price,” Greenberg wrote.

Based on the June 12 closing price of UWMC Class A common stock of $2.38 per share, the default stock consideration implied a value of approximately $5.55 per share — less than half of the $12.50 cash election, Two Harbors said.

In response, Ishbia said that if Two shareholders wanted $12 in cash for their stock, they could call their broker and sell it, noting the shares had been trading well above $12 for six weeks. He said executives reached out because 73% of shareholders had voted, but 54% were against the deal, and the meeting was adjourned. “Are you a Chairman or a Dictator?” Ishbia wrote of Kasnet.

Ishbia also said he was “summoned to go to NYC” and added: “In all due respect, who the heck do you think you are?” He also said TWO’s lawyers threatened UWM with violations of nondisclosure agreements by having consulting firm Okapi Partners contact shareholders.

Greenberg ended communications by saying that if UWM had a different proposal with no stock component, it should present it and the board would consider it.

“If you are prepared to submit a proposal that addresses the Board’s stated concerns, we encourage you to do so. If you have a different proposal to present, present it — the Board will consider it. If the goal is to frustrate a competitor’s transaction, that is unfortunate but we understand that as well.”