AI
Saturday, February 08, 2020 11:32:46 AM
AZ I had some thoughts of this too. Yesterday I talked about Reverse Triangular Mergers, and I believe this is the case with WMI and WMIH/COOP as well.
An example:
- Replace "Public shareholders" with Legacy Equity Holders
- Replace "Dr. Pepper Snapple Group" with "WMI Inc"
- Replace "Salt Merger Sub" with "WMI Investment Corp"
- Replace "Maple Parent Equity Holders" with WMIH/COOP shareholders
- Replace "Maple Parent Holdings Corp" with WMIH/COOP
- Replace "Keurig Green mountain" with Xome, Nationstar etc.
The conditions to make such a reverse triangular merger happen are the following:
- Subsidiary (Merger Sub) needs to have more than 80% of assets of the purchasing entity (left side, in our case WMI). Keep in mind that WMIIC acted as Guarantor for the 600 million of KKR loans in 2015.
- Subsidiary needs to be both a sub of the parent holding, as the target company holding (WMIIC is part of both!).
- Target company needs to be incorporated in Delaware (WMIH reincorporated in Delaware in 2015)
- Subsidiary needs to be liquidated, which happened in 2017. Probably WaMu 1031 Exchange played a role to do this with tax exemptions.
Also:
- The acquirer must also meet the continuity of interest rule, meaning the merger may be made on a tax-free basis if the shareholders of the acquired company hold an equity stake in the acquiring company (Preffered and commons got 95% of the "acquiring company").
In addition, the acquirer must be approved of by the boards of directors of both entities (This one was easy, because Willingham was a part of EC before).
The Cell Captive structure of the new formed entity comes into place. Legacy holders are able to receive "special dividends", outside the reach of shareholders in Coop because of this merger structure which is only possible in Delaware!
So IMO we can expect Dividends soon. And the beauty of all, because of the Form 15 filing of yesterday, this all can happen in the dark and out of the public eye. Nobody needs to know about it, we get a special dividend in a big first installment and in smaller future installments.
COOP also wins, because they get to service (and maybe are already servicing?) former legacy MBS, which JPM always neatly recorded as "off balance sheet assets" on their 10K's). That's why KKR and later Nationstar came in. Also, I think that is why the Power of Attorney of FDIC (which is active until the 25th of Februari) will rightfully flow to the Post-merger entity Holding Company, the original WMI holding.
Now why take all this effort to do it this way?
https://www.investopedia.com/terms/r/rtm.asp
"A reverse triangular merger is attractive when the seller’s continued existence is needed for reasons other than tax benefits, such as rights relating to franchising, leasing or contracts, or specific licenses that may be held and owned solely by the seller."
WMI (and it's successor WMILT), through it's sub WMIIC, needed to maintain the rights and contracts of the income streams of the MBS's. And needed a corporate structure to give this cash back to legacy equity holders in the form of dividend IMO. And this type of merger is also very tax friendly.
I also believed that because of the great business expertise and inside knowledge of Killinger, Bonderman et. al this was planned and set in stone a longggg time ago.
I believe this is what we will see unfold in the coming months. End of March I believe.
Happy days to come!
An example:
- Replace "Public shareholders" with Legacy Equity Holders
- Replace "Dr. Pepper Snapple Group" with "WMI Inc"
- Replace "Salt Merger Sub" with "WMI Investment Corp"
- Replace "Maple Parent Equity Holders" with WMIH/COOP shareholders
- Replace "Maple Parent Holdings Corp" with WMIH/COOP
- Replace "Keurig Green mountain" with Xome, Nationstar etc.
The conditions to make such a reverse triangular merger happen are the following:
- Subsidiary (Merger Sub) needs to have more than 80% of assets of the purchasing entity (left side, in our case WMI). Keep in mind that WMIIC acted as Guarantor for the 600 million of KKR loans in 2015.
- Subsidiary needs to be both a sub of the parent holding, as the target company holding (WMIIC is part of both!).
- Target company needs to be incorporated in Delaware (WMIH reincorporated in Delaware in 2015)
- Subsidiary needs to be liquidated, which happened in 2017. Probably WaMu 1031 Exchange played a role to do this with tax exemptions.
Also:
- The acquirer must also meet the continuity of interest rule, meaning the merger may be made on a tax-free basis if the shareholders of the acquired company hold an equity stake in the acquiring company (Preffered and commons got 95% of the "acquiring company").
In addition, the acquirer must be approved of by the boards of directors of both entities (This one was easy, because Willingham was a part of EC before).
The Cell Captive structure of the new formed entity comes into place. Legacy holders are able to receive "special dividends", outside the reach of shareholders in Coop because of this merger structure which is only possible in Delaware!
So IMO we can expect Dividends soon. And the beauty of all, because of the Form 15 filing of yesterday, this all can happen in the dark and out of the public eye. Nobody needs to know about it, we get a special dividend in a big first installment and in smaller future installments.
COOP also wins, because they get to service (and maybe are already servicing?) former legacy MBS, which JPM always neatly recorded as "off balance sheet assets" on their 10K's). That's why KKR and later Nationstar came in. Also, I think that is why the Power of Attorney of FDIC (which is active until the 25th of Februari) will rightfully flow to the Post-merger entity Holding Company, the original WMI holding.
Now why take all this effort to do it this way?
https://www.investopedia.com/terms/r/rtm.asp
"A reverse triangular merger is attractive when the seller’s continued existence is needed for reasons other than tax benefits, such as rights relating to franchising, leasing or contracts, or specific licenses that may be held and owned solely by the seller."
WMI (and it's successor WMILT), through it's sub WMIIC, needed to maintain the rights and contracts of the income streams of the MBS's. And needed a corporate structure to give this cash back to legacy equity holders in the form of dividend IMO. And this type of merger is also very tax friendly.
I also believed that because of the great business expertise and inside knowledge of Killinger, Bonderman et. al this was planned and set in stone a longggg time ago.
I believe this is what we will see unfold in the coming months. End of March I believe.
Happy days to come!
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