By KIMBERLEY HAAS
An investor has filed a class action complaint claiming he and other shareholders were misled prior to a merger deal involving United Wholesale Mortgage.
Lawyers for Richard Delman say false and misleading disclosures induced public stockholders of Gores Holdings IV, LLC to invest in a merger rather than redeem their shares, causing monetary damages.
Company leaders for UWM and Gores announced the deal in September 2020, saying upon completing the transaction UWM would go public and be listed on NASDAQ under the ticker symbol “UWMC.”
“The transaction values UWM at approximately $16.1 billion, or 9.5x the company’s estimated 2021 adjusted net income of approximately $1.7 billion,” a press release stated.
Alec Gores, chairman and CEO of The Gores Group, said in a statement that as a public company, “UWM will be well positioned given its significant competitive advantages and we look forward to working together to accelerate the next phase of growth and to drive value for all of our stakeholders.”
According to court documents, Gores is a Delaware corporation that was formed as a special purpose acquisition company with stockholders throughout the United States.
Delman’s lawyers argue leaders at Gores breached their fiduciary duties to their stockholders during the merger with SFS Holding Corp., United Wholesale Mortgage, LLC, and UWM Holdings, LLC. They say the merger agreement published by the Gores board of directors valued the company’s shares at $10, even though there was less than $8.25 in net cash underlying them.
Leaders at UWM inflated projections to match this implied valuation, saying they would increase pro forma tax-adjusted income by 77% and revenues by 61% by the end of 2022, according to the complaint.
“The inflated valuation and projections failed to account for the inevitable slowdown of the refinance and origination market, a predictable rise in interest rates, and significant regulatory risks that would require substantial changes to the business,” the complaint filed by Kelly Tucker at Grant and Eisenhofer in Wilmington, Del., states.
It was announced on Nov. 9, 2020, that leaders at UWM intended to adopt a policy of issuing a regular annual dividend of $0.40 per share as part of its capital allocation strategy following the merger with Gores.
On Jan. 21, 2021, the deal closed. Stocks were initially being traded at $11.54 per share, according to the complaint.
By April 20, 2021, stock prices had dropped to $7.23. They were down to $5.29 per share by Jan. 21, 2022, and closed on March 6 of this year at $4.76, according to the complaint.
Lawyers for Delman want damages and interest for plaintiffs in an amount that can be proven at trial. They also ask that class members still holding them be allowed to redeem their shares.
“The deeply conflicted members of the board breached their duty of loyalty and candor by impairing public stockholders’ redemption rights by recommending the merger, providing misleading information in the proxy, and omitting from the proxy information that was highly material to public stockholders’ decision whether to redeem their shares or invest in the merger,” the complaint states.
The complaint, filed at Delaware Chancery Court, states that during an initial meeting on April 20, 2020, UWM’s CEO and Chairman Mat Ishbia provided Gores leaders with a high-level view of the company’s operations. At the time, UWM was setting company records.
On Jan. 6, 2020, leaders at UWM announced that they had $107.7 billion in mortgage loan volume in 2019, more than doubling 2018’s production of $41.5 billion.
By the end of Q3, UWM had already closed a year-to-date total of $127.8 billion in production. Ishbia said at the time, it was the best quarter in the company’s history.
Leaders at UWM Holdings announced in February 2021 that UWM reported a FY20 net income of $3.38 billion. The board of directors of UWMC declared its first regular quarterly dividend of $0.10 per share on outstanding shares of Class A common stock.
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