Two Harbors investor seeking to halt CrossCountry vote

A Two Harbors shareholder will have a last-minute shot at halting a vote next week on the company’s pending merger with CrossCountry Mortgage.

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A federal court will hold a hearing Monday morning to weigh a temporary restraining order on the vote, 24 hours before the company’s special meeting Tuesday. The servicer’s board of directors have encouraged shareholders to back CrossCountry’s bid, over competing offers from its original acquisition partner, United Wholesale Mortgage. 

Stockholder George Assad, who claims to have no preference between the bidders, alleges securities violations in Two’s acquisition-related Securities and Exchange Commission filings. Among the claims, he suggests the firm’s leaders are not negotiating in good faith with UWM; and that they’re concealing information about their potential financial windfall from the CrossCountry deal.

The lawsuit did not disclose how many Two Harbors shares Assad owns, nor whether he owned any stock in UWM. Attorneys for the plaintiff declined to comment Friday afternoon. 

Since opting for CrossCountry’s offer in March, Two Harbors’ board of directors have publicly rejected overtures from UWM. 

The board has remained committed to CrossCountry’s offer, which could deliver a cash total of around $12.45 to $12.68 per share, per an update Thursday not reflected in the lawsuit text. It rejected UWM’s offer of $12.50 per share this week. 

As the bidding has evolved, the companies have meanwhile traded barbs in press releases regarding each other’s terms.

A spokesperson for Two did not return a request for comment.

Claims over the disclosures

Assad’s arguments echo public criticisms by UWM President and CEO Mat Ishbia earlier this month, including that Two Harbors executives are serving their own interests over shareholders’ in opting for the CrossCountry bid. 

The complaint suggests Two Harbors’ proxy statements earlier this month don’t address whether the servicer breached a no-shop provision in dealing with CrossCountry, and mum regarding potential roles, if any, of executives post-closing. 

The suit also asks the servicer to address UWM’s claim that executives would receive around $35 million in cash payouts upon closing. In the proxy, Two Harbors describes a “golden parachute” payment of around $14.8 million for its CEO, William Greenberg. 

UWM has also publicly suggested its proposed structure reduces overall compensation to management and defers some of their payout, paying higher value to shareholders. 

Two’s board issued a lengthy press release Wednesday, the same day the lawsuit was filed, describing their concern regarding UWM’s deal, but did not clearly state whether executives are primed for the $35 million payout with CrossCountry. They emphasized that no Two Harbors leaders are at this time expected to be retained by either CrossCountry or UWM.

“For TWO’s Board, this is about doing what is right for all TWO stockholders — not deflecting from the substantive deficiencies in UWMC’s proposal that UWMC has failed to address,” the press release read. 

The companies have not issued additional comments beyond their salvo earlier this week.