On Tuesday, Mat Ishbia launched a strategy to attract sophisticated institutional investors to United Wholesale Mortgage (UWM) shares and eliminate the “meme stock” label. However, that strategy is dead for now as UWM Holdings Corp. said on Thursday that its principal shareholder, SFS Holding Corp. — a holding company controlled by Mat Ishbia and his father, Jeffrey Ishbia — terminated the secondary offering announced two days before.
“Unfortunately, while there was more than enough demand from potential investors, the overall market conditions were such that the prices offered were not at levels that I will entertain,” said Mat Ishbia in a statement.
Following the secondary offering announcement, the stock prices dipped 16.5% from Tuesday to Thursday to $5.52. The market reaction to the termination of the secondary offering was fast: on Friday (around 11:00 am EST), UWM was trading at $6.74, up 21.8%.
Under the secondary offering, SFS Holding Corp. would have sold up to 57.5 million Class A common shares, bringing $317.4 million to the family (at $5.52 per share on Nov. 18). The holding company’s ownership would decrease from 93.6% to 90.6% of outstanding Class A common shares. Still, according to SEC documents, SFS would continue to have around 79% of the combined voting power.
The company’s public float would have increased by approximately 50% with the secondary offering, the company said. Consequently, shares would be more liquid, tradable for larger indexes and institutional investors. For example, the S&P 500 index requires a 10% public float level, among other rules, such as having a market capitalization of at least $11.8 billion and four consecutive quarters of positive earnings.
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Now, according to the company, no shares of common stock will be sold by SFS at this time.
But on Friday UWM filed a prospectus using a shelf registration process, which allows an issuer to complete multiple offerings in the future, instead of doing it all at once. Under the shelf process, SFS may, from time to time, sell up to an aggregate of 150 million shares of class A common stock at a proposed maximum price of $7.
On Thursday, UWM also said it intends to accelerate its previously announced buyback program and defer its plans to increase public float to a later date.
As UWM’s stock has sagged due to mortgage activity cooling down, the company is engaged in a $300 million buyback program announced in May. On Tuesday, the company said it would buy $100 million in shares owned by Ishbia-helmed SFS Holding Corp., at the same price as the secondary offer, paid with existing cash.
In the third quarter earnings call with analysts, Tim Forrester, UWM’s chief financial officer, said the company had acquired approximately 2.7 million shares through a stock buyback program for roughly $21 million to date.
Ishbia said in a statement that the company will be “aggressive” about the buyback authorization, considering the stock’s low prices.
“If the market returns to a reasonable level, SFS will be willing to do its part by providing availability to increase the public float, but the terms have to make sense, and doing a deal today at these levels did not make sense to me.”
UWM went public in January after merging with a special purpose acquisition company (SPAC) called Gores Holdings IV. The company at the time had a valuation of $16.1 billion. On Thursday, the company’s market cap was down to $9.2 billion.
Editors note: This article has been updated to reflect that January was the month that UWM went public, not February.