Two Harbors Investment Corp. (NYSE: TWO) (“Two
Harbors”), a leading hybrid mortgage real estate investment trust
(“REIT”), and CYS Investments, Inc. (NYSE: CYS) (“CYS”), an
Agency mortgage REIT, announced today that they have entered into a
definitive merger agreement under which Two Harbors will acquire
CYS.
In connection with the merger, CYS stockholders will exchange
their shares of CYS common stock for newly issued shares of Two
Harbors common stock as well as aggregate cash consideration of
$15,000,000. The number of Two Harbors shares issued will be based
on an exchange ratio to be determined by dividing 96.75% of CYS’
adjusted book value per share by 94.20% of Two Harbors’ adjusted
book value per share. For illustrative purposes, assuming the
merger occurs and the exchange ratio was based on March 31, 2018
adjusted book value per share, CYS stockholders would receive $7.79
of combined cash and stock consideration per share of CYS common
stock owned, which represents a premium of approximately 17.7% over
the CYS closing price per share on April 25, 2018. The actual
exchange ratio for the merger will be publicly announced at least
five business days prior to the required stockholder votes on the
merger.
Two Harbors and CYS will hold a joint conference call at 9:00
A.M. Eastern Time on April 26, 2018 to discuss the merger. To
participate in the teleconference, please call toll-free (877)
868-1835, Conference Code 7197703, (or (914) 495-8581 for
international callers) approximately 10 minutes prior to the above
start time. You may also listen to the teleconference live via the
Internet and review related materials at
www.twoharborsinvestment.com in the Investor Relations section
under the Events and Presentations link.
Anticipated Benefits to Two Harbors Stockholders from the
Merger
- Additional capital supports
continued growth in target assets: A larger capital base will
support the continued growth across Two Harbors’ target assets, and
positions Two Harbors to take advantage of market opportunities as
they arise.
- Improved cost structure: Expect
that the combination of Two Harbors and CYS will create cost
efficiencies and decrease Two Harbors’ other operating expense
ratio by 30 to 40 basis points. Additionally PRCM Advisers’
agreement to reduce its base management fee on the new CYS equity
will further enhance operating cost efficiencies in the year
following the close of the transaction.
- Expect to maintain $0.47 per share
quarterly dividend: Following the close of the transaction, Two
Harbors anticipates that its current quarterly dividend of $0.47
will be sustainable through 2018, subject to market conditions and
the discretion and approval of Two Harbors’ Board of
Directors.
- Enhanced scale and liquidity with
potential for premium valuation: With a pro forma equity base
of nearly $5.0 billion, Two Harbors stockholders will benefit from
the scale, liquidity and capital alternatives of a larger combined
company. Additionally, larger capitalized mortgage REITs have
historically carried premium valuations.
- Anticipate improved Agency spreads
in 2018: If so, Two Harbors believes this deal will be
accretive to earnings and endorses the capital raising attendant to
this transaction.
Anticipated Benefits to CYS Stockholders from the
Merger
- Enhanced scale and liquidity:
CYS stockholders will benefit from increased operating scale,
liquidity and capital alternatives available to a larger combined
company.
- Meaningful premium to CYS
stockholders: Based on March 31, 2018 adjusted book values per
share, CYS stockholders would receive $7.79 of combined cash and
stock consideration per share of CYS common stock, which represents
a premium of approximately 17.7% over the CYS closing price per
share on April 25, 2018.
- Benefit from a more diversified
business model: Two Harbors’ hybrid business model is
positioned to withstand periods of market volatility and is
comprised of a mix of asset classes and a platform that is
challenging to replicate. Two Harbors’ portfolio includes a Rates
strategy comprised of Agency RMBS paired with mortgage servicing
rights (“MSR”), and a Credit strategy, comprised primarily of
deeply discounted, legacy non-Agency RMBS.
- Strong stewards of capital: Two
Harbors has a history of being strong stewards of its stockholders’
capital. Since 2009, Two Harbors has outperformed its peer group
and has grown its book value with less volatility. Additionally,
Two Harbors has a stock repurchase program in place to support its
stock.
About the Merger
Upon the closing of the merger, CYS stockholders will exchange
their shares of CYS common stock for newly issued shares of Two
Harbors common stock as well as aggregate cash consideration of
$15,000,000, payable to CYS stockholders on a pro rata basis.
The number of Two Harbors shares to be received by CYS
stockholders will be based on an exchange ratio to be determined by
dividing 96.75% of the CYS adjusted book value per share by 94.20%
of the Two Harbors adjusted book value per share. As defined
in the Merger Agreement, adjusted book value per share for each
company means (i) such company’s total consolidated common
stockholders’ equity after giving pro forma effect to any dividends
or other distributions for which the record date is after the
exchange ratio determination date but prior to the closing of the
merger and as modified for potential transaction-related
adjustments, divided by (ii) each respective company’s number of
shares of common stock issued and outstanding, including shares
issuable upon the vesting of restricted stock.
As of March 31, 2018, the adjusted book value per share for Two
Harbors and CYS, on a pro forma basis, would have been $15.63 and
$7.41, respectively, representing an exchange ratio of 0.4872x,
with each share of CYS being exchanged for 0.4872 shares of Two
Harbors. For illustrative purposes, under a pro forma exchange
ratio, assuming the merger occurs and the exchange ratio was
calculated as of March 31, 2018, CYS stockholders would receive
approximately 75.7 million Two Harbors shares (representing
approximately 30% of the Two Harbors’ total outstanding shares
immediately following the merger), which, in combination with the
cash consideration of $15,000,000, would value CYS at approximately
$7.79 per share of common stock. This valuation represents a
premium of approximately 17.7% above the closing price per share of
CYS common stock on the New York Stock Exchange on April 25,
2018.
The actual exchange ratio for the merger will be publicly
announced at least five business days prior to the required
stockholder votes on the merger.
In connection with the merger, PRCM Advisers LLC, Two Harbors’
external manager, a subsidiary of Pine River Capital Management
L.P., has agreed to reduce the base management fee it charges Two
Harbors with respect to the additional equity under management
resulting from the merger from 1.5% of Stockholders’ Equity on an
annualized basis to 0.75% through the first anniversary of the
closing of the merger. PRCM Advisers LLC will also make a one-time
downward adjustment of $15,000,000 to the management fees payable
by Two Harbors for the quarter in which the merger closes. PRCM
Advisers has also agreed to a post-closing downward adjustment of
up to $3.3 million to reimburse Two Harbors for certain transaction
related expenses.
In addition to the above consideration, Two Harbors would assume
the existing notional $75 million in CYS 7.75% Series A cumulative
redeemable preferred stock and $200 million in CYS 7.50% Series B
cumulative redeemable preferred stock.
Following the closing of the transaction, all senior management
positions will continue to be led by Two Harbors’ personnel and Two
Harbors Board of Directors will be expanded to include two
additional independent directors from CYS Investments’ current
board, James Stern and Karen Hammond.
The completion of the merger is subject to the satisfaction of
certain customary conditions, and is subject to the approval of the
stockholders of both Two Harbors and CYS. The companies expect the
transaction to close in the third quarter of 2018.
“We are pleased to announce the acquisition of CYS Investments,
which we believe represents a unique opportunity to create value
for our stockholders,” stated Thomas Siering, Two Harbors’
President and Chief Executive Officer. “This transaction offers Two
Harbors stockholders the opportunity to benefit from additional
capital, supporting continued growth in our target assets, as well
as an improved cost structure. The combination of the two companies
also supports the potential for the premium valuation of a pro
forma Two Harbors.”
“We are excited about the opportunity to merge with Two Harbors
and believe that our stockholders will benefit from the increased
scale, diversification and liquidity of the combined companies,”
stated Kevin Grant, CYS Investments’ Chairman, Chief Executive
Officer, President and Chief Investment Officer. “Two Harbors has a
long history of being strong stewards of capital and we believe
this transaction should enhance value for our stockholders over the
long-term.”
JMP Securities LLC is serving as financial advisor, and Sidley
Austin LLP is serving as legal advisor to Two Harbors. Barclays
Capital Inc. and Credit Suisse Securities (USA) LLC are serving as
financial advisors, and Vinson & Elkins LLP is serving as legal
advisor to CYS.
Additional Information about the Merger
This communication relates to the proposed transaction pursuant
to the terms of the Agreement and Plan of Merger, dated as of April
25, 2018, by and among Two Harbors, Eiger Merger Subsidiary LLC and
CYS. In connection with the proposed merger, Two Harbors expects to
file with the Securities and Exchange Commission (“SEC”) a
registration statement on Form S-4 that will include a joint proxy
statement of Two Harbors and CYS that also constitutes a prospectus
of Two Harbors (the “joint proxy statement/prospectus”) which joint
proxy statement/prospectus will be mailed or otherwise disseminated
to Two Harbors stockholders and CYS stockholders when it becomes
available. Two Harbors and CYS also plan to file other relevant
documents with the SEC regarding the proposed transaction.
INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS
AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IF AND WHEN THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION
ABOUT THE MERGER. You may obtain a free copy of the joint proxy
statement/prospectus and other relevant documents (if and when they
become available) filed by Two Harbors and CYS with the SEC at the
SEC’s website at www.sec.gov. Copies of the documents filed by Two
Harbors with the SEC will be available free of charge on Two
Harbors’ website at www.twoharborsinvestment.com or by emailing Two
Harbors’ Investor Relations at investors@twoharborsinvestment.com
or at (612) 629-2500. Copies of the documents filed by CYS with the
SEC will be available free of charge on CYS’s website at
www.cysinv.com or by contacting CYS Investor Relations at
ir@cysinv.com or at (617) 639-0440.
Participants in Solicitation Relating to the Merger
Two Harbors, CYS and their respective directors, executive
officers and other members of management and employees may be
deemed to be participants in the solicitation of proxies from Two
Harbors and CYS stockholders in respect of the proposed merger.
Information regarding the Two Harbors directors and executive
officers can be found in Two Harbors definitive proxy statement
filed with the SEC on March 29, 2018 and the Two Harbors’ most
recent Annual Report filed on Form 10-K on February 27, 2018.
Information regarding the CYS directors and executive officers
can be found in CYS definitive proxy statement filed with the SEC
on March 29, 2018 and CYS’s most recent Annual Report filed on Form
10-K on February 15, 2018.
Additional information regarding the interests of such potential
participants will be included in the joint proxy
statement/prospectus and other relevant documents filed with the
SEC in connection with the proposed merger if and when they become
available. These documents are available free of charge on the
SEC’s website and from Two Harbors or CYS, as applicable, using the
sources indicated above.
Forward-Looking Statements
This press release includes “forward-looking statements” within
the meaning of the safe harbor provisions of the United States
Private Securities Litigation Reform Act of 1995. Actual results
may differ from expectations, estimates and projections and,
consequently, readers should not rely on these forward-looking
statements as predictions of future events. Words such as “expect,”
“target,” “assume,” “estimate,” “project,” “budget,” “forecast,”
“anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,”
“believe,” “predicts,” “potential,” “continue,” and similar
expressions are intended to identify such forward-looking
statements, which generally are not historical in nature. Such
forward-looking statements involve significant risks and
uncertainties that could cause actual results to differ materially
from expected results, and may include, but are not limited to,
statements about the anticipated benefits of the proposed merger
between Two Harbors and CYS, including future financial and
operating results, the attractiveness of the value to be received
by CYS stockholders, the attractiveness of the value to be received
by Two Harbors, the combined company’s plans, objectives,
expectations and intentions, the timing of future events,
anticipated administrative and operating synergies, the anticipated
impact of the merger on net debt ratios, cost of capital, future
dividend payment rates, forecasts of earnings or performance
measures, expected sources of financing, and descriptions relating
to these expectations. All statements that address operating
performance, events or developments that we expect or anticipate
will occur in the future—including statements relating to expected
synergies, improved liquidity and balance sheet strength—are
forward-looking statements. Pro forma, projected and estimated
numbers are used for illustrative purposes only, are not forecasts
and may not reflect actual results. These statements are not
guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. Two
Harbors and CYS’s ability to predict results or the actual effect
of future events, actions, plans or strategies is inherently
uncertain. Although Two Harbors and CYS believe the expectations
reflected in any forward-looking statements are based on reasonable
assumptions, the companies can give no assurance that their
expectations will be attained and therefore, actual outcomes and
results may differ materially from what is expressed or forecasted
in such forward-looking statements.
Readers are cautioned not to place undue reliance upon any
forward-looking statements, which speak only as of the date made.
Neither Two Harbors nor CYS undertakes or accepts any obligation to
release publicly any updates or revisions to any forward-looking
statement to reflect any change in its expectations or any change
in events, conditions or circumstances on which any such statement
is based. Additional information concerning these and other risk
factors is discussed in reports filed with the SEC by Two Harbors
and CYS from time to time, including those discussed under the
heading “Risk Factors” in their respective most recently filed
reports on Forms 10-K and 10-Q. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak
only as of the date hereof. All subsequent written and oral
forward-looking statements concerning Two Harbors or CYS or matters
attributable to Two Harbors or CYS or any person acting on their
behalf are expressly qualified in their entirety by the cautionary
statements above. Neither Two Harbors nor CYS assumes any
obligation to update forward-looking statements to reflect
circumstances or events that occur after the date the
forward-looking statements were made or to reflect the occurrence
of unanticipated events except as required by federal securities
laws.
About Two Harbors Investment Corp.
Two Harbors Investment Corp., a Maryland corporation, is a real
estate investment trust that invests in residential mortgage-backed
securities, mortgage servicing rights and other financial assets.
Two Harbors is headquartered in New York, New York, and is
externally managed and advised by PRCM Advisers LLC, a wholly owned
subsidiary of Pine River Capital Management L.P. Additional
information is available at www.twoharborsinvestment.com.
About CYS Investments, Inc.
CYS Investments, Inc. is a specialty finance company that
invests on a leveraged basis primarily in residential mortgage
pass-through certificates for which the principal and interest
payments are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
The Company refers to these securities as Agency RMBS. The Company
has elected to be taxed as a real estate investment trust for
federal income tax purposes.
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version on businesswire.com: https://www.businesswire.com/news/home/20180426005804/en/
Two Harbors Investment Corp.Margaret Field, 212-364-3663Investor
Relationsmargaret.field@twoharborsinvestment.comorCYS Investments,
Inc.Richard E. Cleary, 617-639-0440Chief Operating
Officerir@cysinv.com
Cys Investments, Inc. (NYSE:CYS)
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