Shares of the mortgage-servicing company Mr. Cooper Group (COOP +0.00%) had blasted 16.3% higher at 10:38 a.m. ET, after the company announced that it had agreed to be acquired by the mortgage giant Rocket Companies.
Consolidation within the mortgage industry
Rocket plans to buy Mr. Cooper Group in an all-stock deal that values the company at $9.4 billion, or $143.33 per share. The transaction represents a 35% premium to the company's 30-day average weighted share price. Mr. Cooper Group shareholders will also receive a $2 cash dividend per share prior to the deal's closing, which is expected to take place in the fourth quarter of this year.
Mr. Cooper Group's chairman and CEO, Jay Bray, will become chairman and CEO of Rocket Mortgage upon the deal's closing, and two members of Mr. Cooper Group will join the company's board. In an investor presentation, Rocket said the deal will be immediately accretive to earnings and grow 2026 earnings in the mid-teens on a percentage basis. Rocket expects to incur $500 million of acquisition-related expenses while realizing annual pretax cost savings in the range of $400 million to $500 million.
NASDAQ: COOP
Key Data Points
Rocket has been on a major buying spree and seems to be attempting to consolidate the fragmented mortgage space. Recently, the company acquired Redfin in a deal valued at $1.75 billion. With the addition of Mr. Cooper Group, Rocket will power one out of every six mortgages in the U.S.
Cashing out
While high interest rates have crushed the mortgage sector, Mr. Cooper Group has been a fantastic stock to own and is now up 2,146% in the last five years. The company is the largest mortgage servicer in the U.S., collecting mortgage payments and passing them along to investors and other involved parties. While high rates hurt most mortgage companies, they actually help mortgage servicers because fewer people refinance, which boosts the value of mortgage servicing rights.
After such an impressive run, Mr. Cooper Group probably figures it's time to cash out before rates can come down. With the stock trading at roughly $122 per share, there may also be a merger arbitrage play here, although investors should consider the regulatory risks of the deal closing first.
