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Mortgage giant Rocket Companies completed a reorganization of its capital structure Monday that will pave the way for the acquisition of tech-forward real estate brokerage Redfin — a deal it’s claimed could cut consumers’ transaction costs in half by compressing agent fees, mortgage gain-on-sale and title premiums.
The all-stock deal, valued at $1.75 billion when announced in March, went unchallenged by antitrust regulators and was approved by Redfin shareholders on June 4.
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In announcing the completion of its reorganization in a regulatory filing, Rocket said it reduced its classes of common stock from four to two in an “Up-C Collapse” that will improve its ability to use its common stock as acquisition currency for future deals.
That includes Rocket’s next big acquisition target, Mr. Cooper Group Inc., the nation’s biggest loan servicer, for stock valued at $9.4 billion.
Company executives have said acquiring Redfin will help subsidiary Rocket Mortgage capture 8 percent of the purchase loan market, and the Mr. Cooper deal will put Rocket in touch with more homeowners who might be ready to refinance.
Detroit-based Rocket wants to handle 20 percent of U.S. mortgage refinancings, and Rocket CEO Varun Krishna said last month that the company has invested about $500 million in AI and other technology that will help the company scale its business without a proportionate increase in expenses after the mergers.
In a March 10 investor presentation, Rocket executives said that by handling every aspect of homebuying and selling — from home search to mortgage financing and title and closing — they aim to cut transaction costs on the median priced home from $40,000 to $20,000.
“For far too long, the homeownership process has been outdated and disconnected,” Krishna told investment analysts in March. “Home search, brokerage, mortgage, title, closing, servicing, all exist in separate ecosystems, forcing consumers to piece together a complex and frustrating journey.”
Redfin shareholders will receive 0.7926 shares of Rocket common stock for each share of Redfin they own. Shares in Rocket closed at $14.18 Monday, up from $9.51 per share before the deal was announced.
Redfin will remain headquartered in Seattle, with CEO Glenn Kelman continuing to lead the business and reporting to Krishna.
“Rocket’s and Redfin’s approaches to lending and brokerage service have always just been two halves of one vision to make the whole home-buying process magical,” Kelman blogged in March.
In reporting first-quarter earnings in May, Rocket executives said the Mr. Cooper acquisition remains on track to close by the end of the year.
Rocket announced on June 3 that it would issue $4 billion in debt and use the proceeds to retire notes held by Mr. Cooper subsidiary Nationstar Mortgage Holdings Inc.
Editor’s note: This story has been updated to clarify that Rocket Companies announced an “Up-C Collapse” reorganization Monday to pave the way for its closing of deals to acquire Redfin and Mr. Cooper.
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