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Nationstar (aka Mr. Cooper) merging with WMIH Corp. in $3.8 billion deal

WMIH is former parent company of Washington Mutual

For more than 11 years, Fortress Investment Group controlled Nationstar Mortgage, the nonbank now known as Mr. Cooper, via majority ownership in the company’s shares.

Fortress bought Nationstar in 2006, took the company public in 2012, and has maintained on ownership share of approximately 70% of Nationstar ever since.

But that’s about to change.

Nationstar announced Tuesday morning that it is merging with WMIH Corp., the former parent company of Washington Mutual in a $3.8 billion deal.

In 2012, WMIH emerged from bankruptcy as the successor to Washington Mutual, and is currently the direct parent of WM Mortgage Reinsurance.

According to WMIH Corp.’s website, the company had limited operations since it emerged from bankruptcy. During that time, WMIH has mainly run WM Mortgage Reinsurance’s legacy business, which has not written any new business since Sept. 26, 2008 and is currently operating in runoff mode.

The company’s website states that WMIH is “actively seeking” acquisition opportunities, and it has found that acquisition opportunity in the form of Nationstar.

According to the companies, the combines business will keep the Nationstar Mortgage name and its Dallas Headquarters and, at least initially, be traded on the NASDAQ under the ticker symbol “WMIH”.

The companies stated that Nationstar’s operations will “continue as normal” and its employees will join the combined company, which will continue to be led by Nationstar’s senior leadership team. Nationstar CEO Jay Bray will continue to serve as the company’s CEO.

Under the terms of the agreement, Nationstar shareholders may choose to receive $18 in cash or 12.7793 shares of WMIH common stock for each share of Nationstar common stock they currently own, as long as 32% of the total outstanding Nationstar shares are exchanged for WMIH stock.

Nationstar stock closed Monday’s trading at $17.10, while WMIH closed Monday’s trading at $0.80. WMIH’s stock is soaring on the Nationstar news though. In early trading Tuesday, WMIH is up more than 55% to $1.25.

According to the companies, $1.2 billion in cash is being made available to Nationstar shareholders who elect to take cash for their shares.

The value of the WMIH shares included in the deal is expected to be approximately $702 million.

Additionally, approximately $1.9 billion of Nationstar’s existing senior unsecured notes will be refinanced at closing.

That places the aggregate consideration for Nationstar at $3.8 billion, according to an investor presentation published as part of the deal.

Fortress, which was acquired late last year by SoftBank Group, a Japanese technology company, in a $3.3 billion deal, is cashing out roughly half of its Nationstar shares in the deal.

As stated above, Fortress currently owns approximately 68.1 million shares of Nationstar’s stock, or 71.06% of the company.

According to the details provided by Nationstar, Fortress has agreed to the deal and is taking cash for approximately 34 million of its shares.

That means that at $18 per share, Fortress will take away roughly $612 million in the deal and will maintain ownership of roughly half of its shares.

Per Fortress’ website, its initial outlay for Nationstar was $450 million.

Upon completion of the deal, Nationstar shareholders will own approximately 36% of the combined company and WMIH shareholders will own approximately 64%.

KKR, a private equity firm, currently owns 24% of WMIH, and as a result of this deal, will own 17% of Nationstar as well.

According to a letter from Bray to Nationstar’s employees, which was included in an accompanying filing with the Securities and Exchange Commission, nothing about Nationstar’s operations will change as part of the deal.

“As you may know, our company has been majority-owned by the Fortress Investment Group for eleven years, and I am grateful for our long-term relationship. Under Fortress’ ownership, we have done amazing things as a business, including going public and launching Mr. Cooper,” Bray wrote in the letter.

“This deal will change our majority-ownership relationship with Fortress and will open a new chapter with WMIH, KKR, the company’s largest stockholder and strategic partner, and other investors,” Bray continued.

“So what happens next? In a lot of ways, it will be business as usual. Our jobs will be the same as they were yesterday,” Bray added. “Today marks another huge day in our company’s history. Please take a moment to think about how far we’ve come and how fortunate we are as a company. We’ve built something truly extraordinary at Mr. Cooper, and I have never been more excited for what’s to come.”

In an additional Q&A, the company provided more details about the deal, including stating that all Nationstar’s businesses, including Xome, are part of the deal.

“As our conversations with WMIH developed, it became clear to the Nationstar Board that they were the right long-term partner and that now was the right time. We share a common vision with WMIH for the future potential of our platform, and we believe we will benefit from the deep financial industry expertise that WMIH brings to the table, including through the involvement of KKR,” the company said.

“WMIH has great respect for the company we’ve built, for our incredible team, and for our culture,” the company continued. “WMIH is not buying Nationstar for our individual components, but for the whole.”

According to the Q&A, there will be no changes to Nationstar’s leadership or operations.

“We do not have any plans to make executive management changes at this time. Though WMIH is publicly traded, they do not have expertise in mortgage servicing, originations or technology, and the business will rely on Nationstar’s leadership and staff to operate effectively,” Nationstar said. “Additionally, they saw what we’ve all known for some time, that we have the best team and an incredible vision for our customers and our business.”

The company also said that it is not making any changes to its Mr. Cooper brand, which it officially transitioned to last year, stating:

We are 100% committed to Mr. Cooper! During our conversations with WMIH and KKR, we proudly shared how far we’ve come on our journey to become Mr. Cooper, the impressive milestones we’ve reached servicing more than 3 million customers, and the enormous opportunity we have to drive further change in our industry. This agreement is an amazing recognition of those achievements and another incredible step in our journey to reinvent the home loan experience for our customers. With the merger in to WMIH and KKR as an equity partner, we will be well positioned to innovate and invest in growing our business, reaching new customers and launching new products.

The companies expect the deal to close in the second half of 2018, subject to standard closing conditions and regulatory approvals.

“We expect this merger to create value for our shareholders in both the near and long-term, including immediate accretion on a cash EPS basis and a cash premium for those of our stockholders who elect to receive the cash merger consideration,” Bray said in a release.

“I am passionately committed to continuing and accelerating our growth and investment as a leader in our industry, leveraging our best-in-class integrated servicing and originations platform,” Bray continued. “The Nationstar Board and management team have taken considerable steps to make homeownership simpler and more rewarding for our three million customers and we look forward to identifying additional opportunities to enhance value for the combined company’s shareholders.”

WMIH CEO Bill Gallagher said that Nationstar “aligns perfectly” with the company’s acquisition strategy.

“Nationstar’s talented and experienced management team, best-in-class servicing platform, and continued investments in customer education and self-service position it for growth across channels and services,” Gallagher said.

“We look forward to working with Nationstar’s talented team to build on the Company’s strong foundation to drive growth, expand the platform and create shareholder value,” Gallagher added. “The combined company is expected to benefit from WMIH’s platform and financial attributes, which are expected to enhance free cash flow available to support business growth and be accretive to shareholders’ equity.”

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