UWM Holdings to Acquire Two Harbors in $1.3B All-Stock Merger to Create Mortgage Servicing Giant

UWM Holdings Corporation (NYSE:UWMC) is one of the cheap penny stocks to invest in. On December 17, UWM Holdings Corporation announced a definitive merger agreement to acquire Two Harbors Investment Corp. (NYSE:TWO). This all-stock transaction is valued at ~$1.3 billion in equity, based on a fixed exchange ratio of 2.3328x. The acquisition incorporates Two Harbors, which is a prominent mortgage servicing rights/MSR-focused real Estate Investment Trust and owner of RoundPoint Mortgage Servicing LLC, into UWM’s operations to create a more resilient and profitable business model.

A primary driver of the deal is the massive expansion of UWM’s servicing capabilities. The transaction adds a high-quality MSR portfolio with a $176 billion unpaid principal balance/UPB, nearly doubling UWM’s existing book to a total of ~$400 billion. This scale positions the combined company as the eighth-largest mortgage servicer in the US. By bringing this volume in-house, UWM expects to generate significant recurring revenue and provide its mortgage broker network with enhanced lead generation to drive consumer engagement.

Financially, the merger is expected to be highly accretive, with the opportunity for ~$150 million in annual cost and revenue synergies. UWM intends to use Two Harbors’ specialized capital markets expertise to create new efficiencies in financing, hedging, and secondary market activities. The resulting strong pro forma cash flow and fortified balance sheet are designed to allow the company to continue its current dividend policy for stockholders of both entities while maintaining aggressive investment in the broker channel.

UWM Holdings Corporation (NYSE:UWMC) engages in the origination, sale, and servicing of residential mortgage lending in the US.

READ NEXT: 30 Stocks That Should Double in 3 Years and 11 Hidden AI Stocks to Buy Right Now.

Disclosure: None. This article is originally published at Insider Monkey.