Two Harbors shareholders faced a choice between two offers. One promised more money on paper. The other offered cash and came with no need for shareholders to make an active election.
The winning bid came from CrossCountry Mortgage at $12 per share in cash. That was lower than the cash option of $12.50 offered by rival UWM Holdings Corp. UWM's all-stock deal had lost a lot of value since December, when Two Harbors first agreed to it.
UWM's initial offer was an all-stock deal with an exchange ratio of 2.3328 UWM shares for each Two Harbors share. That ratio looked good when UWM's stock was high. Then UWM's share price dropped more than 54% from the announcement through the Wednesday before the vote.
The stock collapse made UWM's all-stock offer worth much less than the headline number. UWM tried to fix that by adding a cash election option of $12.50 per share. But that cash option required shareholders to actively choose it. If they did nothing, they would get UWM stock instead.
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Two Harbors' board argued that was a problem. They estimated that 25% to 30% of their shareholders might not realize they needed to pick cash. Those people would end up with UWM's falling stock instead of cash.
The board's logic was that CrossCountry's all-cash bid gave every shareholder the same $12 per share regardless of what they did. No one had to make an active choice.
The merger timeline stretched over several months, with UWM's stock declining steadily after the initial announcement. On June 12, a proposed class-action complaint was lodged by shareholders, alleging that Two Harbors management breached its fiduciary duty by "abandoning" UWM's bid.
UWM's chief executive Mat Ishbia lost his monthslong fight to buy Two Harbors. A UWM spokesperson said the chapter is closed.
"This chapter of the monthslong saga with Two Harbors is now closed," said a UWM spokesperson. "Throughout this process, our offers were superior, but their board's conduct was both inappropriate and consistent with their track record."
But the stock-drop problem and the risk of passive shareholders losing out made the board choose differently. The all-cash deal with CrossCountry will now move forward.
Two Harbors shareholders ended up with a lower price than UWM offered in cash, but they avoided the risk of being stuck with a falling stock. The merger with CrossCountry Mortgage closes the book on a battle that started in December and included a class-action lawsuit.
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