Two Harbors Investment Corp. (NYSE: TWO) (“Two Harbors”) and CYS
Investments, Inc. (NYSE: CYS) (“CYS”) today announced the final
exchange ratio for the previously announced proposed merger between
Two Harbors and CYS.
Summary
- If the proposed merger is completed
after market close on July 31, 2018, as is currently anticipated,
each outstanding share of common stock of CYS (“CYS Common Stock”)
will be converted into the right to receive from Two Harbors (i)
0.4680 newly issued shares of common stock of Two Harbors (“Two
Harbors Common Stock”) and (ii) cash consideration of $0.0965 per
share. As an illustrative example, a stockholder holding 1,000
shares of CYS Common Stock would receive 468 shares of Two Harbors
Common Stock and an additional $96.50 of cash consideration.
- No fractional shares of Two Harbors
Common Stock will be issued in connection with the merger. Instead,
CYS common stockholders will receive cash in lieu of any fractional
shares.
- Shares of CYS Common Stock will
continue to trade on the New York Stock Exchange (“NYSE”) through
the day on July 31, 2018. If the merger is completed as
anticipated, trading in CYS Common Stock will cease after market
close on July 31, 2018, and shares of CYS Common Stock will be
converted into the right to receive Two Harbors common stock and
the cash consideration prior to market open on August 1, 2018.
- The newly issued shares of Two Harbors
Common Stock will begin trading on the NYSE under the ticker symbol
“TWO” on August 1, 2018.
- Registered holders of CYS Common Stock
will have their Two Harbors shares posted to new accounts at
Equiniti Shareowner Services, the transfer agent for Two Harbors.
Beneficial holders of CYS Common Stock will have their Two Harbors
shares posted to their individual accounts at their broker or
financial institution, in accordance with the policies and
procedures of such broker or financial institution.
- The proposed merger remains subject to
approval by both Two Harbors and CYS stockholders. The special
meeting of stockholders for Two Harbors will take place on Friday,
July 27, 2018, at 9:00 a.m. Central Time, at 601 Carlson Parkway,
2nd Floor, Minnetonka, Minnesota 55305, and the special meeting of
stockholders for CYS will take place on Friday, July 27, 2018, at
9:00 a.m. Eastern Time, at 50 Rowes Wharf, Boston, Massachusetts
02110.
Preferred Stock
- Upon the completion of the merger, each
share of CYS 7.75% Series A Cumulative Redeemable Preferred Stock
will be converted into the right to receive one share of newly
classified TWO 7.75% Series D Cumulative Redeemable Preferred
Stock, and each share of CYS 7.50% Series B Cumulative Redeemable
Preferred Stock will be converted into the right to receive one
share of newly classified TWO 7.50% Series E Cumulative Redeemable
Preferred Stock.
- Such newly issued shares of Two Harbors
preferred stock will begin trading on the NYSE under the ticker
symbols “TWO PRD” and “TWO PRE” on August 1, 2018.
Exchange Ratio Determination
The exchange ratio was determined in accordance with the terms
of the previously announced Agreement and Plan of Merger (the
“Merger Agreement”), dated as of April 25, 2018, by and among Two
Harbors, CYS and Eiger Merger Subsidiary LLC (“Merger Sub”),
pursuant to which Merger Sub will merge with and into CYS, with CYS
continuing as the surviving corporation (the “Merger”). As a result
of the Merger, the surviving corporation will become an indirect,
wholly owned subsidiary of Two Harbors.
If the Merger and the other transactions contemplated by the
Merger Agreement are completed, CYS common stockholders will
receive 0.4680 newly issued shares of Two Harbors Common Stock for
each share of CYS Common Stock held immediately prior to the
effective time of the Merger, as well as the Per Share Cash
Consideration of $0.0965, as specified in the Merger Agreement.
Each holder of CYS Common Stock who would otherwise have been
entitled to receive a fraction of a share of Two Harbors Common
Stock will be entitled to receive, in lieu thereof, cash, without
interest, in an amount equal to such fractional part of a share of
Two Harbors Common Stock, multiplied by the average of the volume
weighted average price of one share of Two Harbors Common Stock for
the five consecutive trading days immediately prior to the date of
closing of the Merger, as reported by Bloomberg L.P.
The number of shares of Two Harbors common stock to be issued in
the Merger is based on an exchange ratio determined by dividing (i)
CYS adjusted book value per share, multiplied by 96.75%, by (ii)
Two Harbors adjusted book value per share, multiplied by 94.20%,
each as calculated at a time and pursuant to certain calculation
principles set forth in the Merger Agreement. 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 (which was June 30, 2018) 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. The calculation is shown in more detail
below.
(in thousands except share and per
share amounts)
Two Harbors
CYS Total consolidated stockholders’ equity $ 3,480,245 $
1,388,369 Adjustments(1) (754,039 ) (287,846 )
Adjusted book value $ 2,726,206 $ 1,100,523 Shares of common stock
175,470,398 155,440,829
Adjusted book value per share(2)
$ 15.54
$ 7.08
(1)
Reflects, (a) for Two Harbors, deduction
of (i) $726.3 million for the total pre-Merger Two Harbors
preferred stock liquidation preference and (ii) $27.8 million for
additional dividends or other distributions on shares of Two
Harbors Common Stock that are declared or are anticipated to be
declared for which the record date is or will be prior to the
effective time of the Merger and (b) for CYS, an addition of $6.4
million for certain CYS transaction-related expenses and a
deduction of (i) $275.0 million for the total CYS preferred stock
liquidation preference, (ii) $14.1 million for additional dividends
or other distributions on shares of CYS Common Stock that are
declared or are anticipated to be declared for which the record
date is or will be prior to the effective time of the Merger and
(iii) $5.1 million for an asset adjustment.
(2)
Two Harbors book value per share as of
June 30, 2018 was $15.69 prior to merger-related adjustments of
$27.8 million. CYS book value per share as of June 30, 2018 was
$7.16 prior to merger-related adjustments of $12.8 million.
Exchange
Ratio
$6.85 / $14.64 = 0.4680
The final exchange ratio is based on the actual book values of
Two Harbors and CYS as of the determination date of June 30, 2018,
pursuant to the Merger Agreement. The previously announced
illustrative exchange ratio of 0.4872 was based on the adjusted
book value per share of Two Harbors and CYS as of March 31, 2018
and was set out for illustrative purposes only in the joint proxy
statement/prospectus, dated June 25, 2018, that was filed by Two
Harbors with the Securities and Exchange Commission (“SEC”) and
previously distributed to the parties’ respective stockholders. The
total consideration to CYS common stockholders represents a 5.8%
premium to the CYS adjusted book value per share.
Based on the number of shares of CYS Common Stock outstanding on
June 22, 2018, the record date for the special meetings of
stockholders of CYS and Two Harbors, and the 0.4680 exchange ratio
described above, approximately 72.7 million shares of Two Harbors
Common Stock will be issued in connection with the Merger. Further,
based on these assumptions, after giving effect to the Merger,
continuing Two Harbors common stockholders will own approximately
71% of the common equity of the combined company, and former CYS
common stockholders will own approximately 29% of the common equity
of the combined company.
In addition, as part of the Merger, each share of 7.75% Series A
Cumulative Redeemable Preferred Stock, par value $0.01 per share,
of CYS will be converted into the right to receive one share of
newly classified 7.75% Series D Cumulative Redeemable Preferred
Stock, par value $0.01 per share, of Two Harbors, and each share of
7.50% Series B Cumulative Redeemable Preferred Stock, par value
$0.01 per share, of CYS will be converted into the right to receive
one share of newly classified 7.50% Series E Cumulative Redeemable
Preferred Stock, par value $0.01 per share, of Two Harbors.
A special meeting of stockholders of Two Harbors will be held on
July 27, 2018 at 9:00 a.m., Central Time, at 601 Carlson
Parkway, 2nd Floor, Minnetonka, Minnesota 55305, at which the Two
Harbors common stockholders will be asked to approve the issuance
of shares of Two Harbors Common Stock to CYS common stockholders
pursuant to the Merger Agreement.
A special meeting of stockholders of CYS will be held on
July 27, 2018 at 9:00 a.m., Eastern Time, at 50 Rowes
Wharf, Boston, Massachusetts 02110, at which the CYS common
stockholders will be asked to approve the Merger and the other
transactions contemplated by the Merger Agreement.
The Merger Agreement has been approved by both companies’ boards
of directors. The completion of the Merger is subject to the
satisfaction of certain customary conditions, including approval of
the common stockholders of both Two Harbors and CYS. The companies
expect the transaction to close on July 31, 2018.
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., a Maryland corporation, 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. CYS refers to these securities as Agency
RMBS. CYS has elected to be taxed as a real estate investment trust
for federal income tax purposes.
Forward-Looking Statements
This press release may contain “forward-looking statements”.
Such statements are subject to numerous assumptions, risks, and
uncertainties. Statements that do not describe historical or
current facts, including statements about beliefs and expectations,
are forward-looking statements. The forward-looking statements are
intended to be subject to the safe harbor provided by
Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange
Act of 1934, and the Private Securities Litigation Reform Act of
1995. All statements, other than statements of historical
fact, included in this communication that address activities,
events or developments that Two Harbors or CYS expects, believes or
anticipates will or may occur in the future are forward-looking
statements. Words such as “project,” “predict,”
“believe,” “expect,” “anticipate,” “potential,” “create,”
“estimate,” “plan,” “continue,” “intend,” “could,” “foresee,”
“should,” “may,” “will,” “guidance,” “look,” “outlook,” “goal,”
“future,” “assume,” “forecast,” “build,” “focus,” “work,” or the
negative of such terms or other variations thereof and words and
terms of similar substance used in connection with any discussion
of future plans, actions, or events identify forward-looking
statements. However, the absence of these words does not mean that
the statements are not forward-looking. These forward-looking
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
our expectations will be attained and therefore, actual outcomes
and results may differ materially from what is expressed or
forecasted in such forward-looking statements.
There are a number of risks and uncertainties that could cause
actual results to differ materially from the forward-looking
statements included in this communication, including those related
to the merger between Two Harbors and CYS. All such factors are
difficult to predict and are beyond the control of Two Harbors and
CYS, including those detailed in Two Harbors’ annual reports on
Form 10-K, quarterly reports on Form 10-Q and
periodic reports on Form 8-K that are available on Two
Harbors’ website at http://www.twoharborsinvestment.com and on the
SEC’s website at http://www.sec.gov, those detailed in CYS’s annual
reports on Form 10-K, quarterly reports on
Form 10-Q and periodic reports on Form 8-K that
are available on its website at http://www.cysinv.com and on the
SEC’s website at http://www.sec.gov, and those detailed in the
section entitled “Risk Factors” in the joint proxy
statement/prospectus relating to the Merger filed with the SEC on
June 25, 2018.
Each of the forward-looking statements of Two Harbors or CYS are
based on assumptions that Two Harbors or CYS, as applicable,
believes to be reasonable but that may not prove to be accurate.
Any forward-looking statement speaks only as of the date on which
such statement is made, and neither Two Harbors nor CYS undertakes
any obligation to correct or update any forward-looking statement,
whether as a result of new information, future events or otherwise,
except as required by applicable law. Readers are cautioned not to
place undue reliance on these forward-looking statements that speak
only as of the date hereof.
Certain Information Regarding Participants in the
Solicitation
Two Harbors, CYS and their respective directors, executive
officers and certain other members of management and employees of
Two Harbors and CYS may be deemed to be “participants” in the
solicitation of proxies from the stockholders of Two Harbors and
CYS in connection with the Merger. Stockholders can find
information about Two Harbors and its directors and executive
officers and their ownership of common stock of Two Harbors in Two
Harbors’ annual report on Form 10-K for the fiscal year ended
December 31, 2017, in its definitive proxy statement relating to
its 2018 annual meeting of stockholders filed with the SEC on March
29, 2018 and in its Current Report on Form 8-K filed on April 26,
2018. Stockholders can find information about CYS and its directors
and executive officers and their ownership of common stock of CYS
in CYS’s annual report on Form 10-K for the fiscal year ended
December 31, 2017, in its definitive proxy statement relating to
its 2018 annual meeting of stockholders filed with the SEC on March
29, 2018 and in its Current Report on Form 8-K filed on April 26,
2018. Additional information regarding the interests of such
individuals in the Merger is included in the joint proxy
statement/prospectus relating to the Merger filed with the SEC on
June 25, 2018. Free copies of these documents may be obtained as
described in the preceding paragraph.
Additional Information about the Proposed Transaction and
Where to Find It
This communication relates to the proposed transaction pursuant
to the terms of the Merger Agreement.
In connection with the proposed Merger, Two Harbors has filed
with the SEC a registration statement on Form S-4 (which
registration statement has been declared effective) that includes a
joint proxy statement of Two Harbors and CYS that also constitutes
a prospectus. 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. 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 documents filed with the
SEC by Two Harbors will be made available free of charge on Two
Harbors’ website at http://www.twoharborsinvestment.com or by
directing a request to: Two Harbors Investment Corp., 575 Lexington
Avenue, Suite 2930, New York, NY 10022, Attention: Investor
Relations. Copies of documents filed with the SEC by CYS will be
made available free of charge on CYS’s website
at http://www.cysinv.com or by directing a request to: CYS
Investments, Inc., 500 Totten Pond Road, 6th Floor, Waltham, MA
02451, Attention: Richard E. Cleary.
No Offer or Solicitation
This document shall not constitute an offer to sell or the
solicitation of an offer to buy any securities, nor shall there be
any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction.
No offering of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the
Securities Act.
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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
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