SCHEDULE: Rocket Companies Unveils Major Corporate Restructuring, Simplifies Share Structure and Issues Special Dividend

Rocket Companies, Inc. announced a comprehensive corporate restructuring to collapse its Up-C structure, simplify its capital stock to two classes, and provide a special cash dividend to Class A common stockholders, effective June 30, 2025.

Summary

• Rocket Companies, Inc. is undertaking a significant corporate restructuring to transition from its current 'Up-C' structure.
• The primary objectives are to simplify the organizational and capital structure, reduce the number of common stock classes from four to two, and ensure each class of common stock carries one vote per share.
• The restructuring involves a series of transactions, including pre-closing reorganizations for Rock Holdings Inc. (RHI) and Rocket, followed by two mergers and an exchange.
• A special cash dividend of $0.80 per share will be paid to holders of record of Rocket Class A Common Stock as of March 20, 2025, with a payment date of April 3, 2025.
• In the First Merger, Eclipse Sub, Inc. will merge into RHI, with RHI surviving as a direct wholly-owned subsidiary of Rocket. RHI Shares will convert into Rocket Class L Common Stock (50% Series L-1 and 50% Series L-2).
• In the Second Merger, RHI will merge into Rocket GP, LLC (Merger Sub 2), which will survive as a direct wholly-owned subsidiary of Rocket.
• Daniel Gilbert will contribute his Rocket Class D Common Stock and corresponding Holdings LP Units to Rocket in exchange for Rocket Class L Common Stock on a one-to-one basis.
• The Tax Receivable Agreement will be amended to terminate payments related to exchanges occurring on or after the agreement date, though prior obligations remain.
• The Exchange Agreement and the RHI Shareholders Agreement will be terminated.
• Post-restructuring, Daniel Gilbert will beneficially own 1,608,089,722 shares, representing 76.45% of the Class A Common Stock on a fully converted basis, maintaining significant voting power.
• Shares of Class L-1 Common Stock are restricted from transfer until June 30, 2026, and Class L-2 Common Stock until June 30, 2027, with conversion options to Class A Common Stock thereafter.
• All Class L Common Stock will automatically convert to Class A Common Stock upon the later of June 30, 2027, or when Class L Common Stock represents less than 79% of the total voting power of Rocket common stock.

Sentiment

Score: 7

Explanation: The restructuring simplifies a complex corporate structure and includes a special dividend, which are generally positive for transparency and shareholder returns. However, the continued high concentration of voting power with Daniel Gilbert limits broader shareholder influence, preventing a higher score.

Positives

• Simplifies Rocket's complex 'Up-C' organizational and capital structure.
• Reduces the number of common stock classes from four to two, streamlining the equity framework.
• Establishes a one-vote-per-share principle for each class of common stock, enhancing governance clarity.
• Allows RHI and Daniel Gilbert to participate directly in the economics of the publicly traded entity, aligning interests.
• Provides a special cash dividend of $0.80 per share to existing Class A Common Stockholders.

Negatives

• New Class L-1 Common Stock is subject to transfer restrictions until June 30, 2026.
• New Class L-2 Common Stock is subject to transfer restrictions until June 30, 2027.
• Daniel Gilbert retains substantial control, beneficially owning 76.45% of the Class A Common Stock on a fully converted basis and maintaining majority voting power.

Risks

• Potential for legal restraints to prohibit or make illegal the mergers or DG Exchange.
• Risk that the mergers, taken together, may fail to qualify as a reorganization under Section 368(a) of the Code, impacting tax treatment.
• Breaches of representations, warranties, covenants, or agreements by any party could lead to the termination of the Transaction Agreement.
• The Company may defer the filing or effectiveness of a registration statement or suspend the use of a prospectus for up to 120 days (once every 12 months) if disclosure of material non-public information would be detrimental or interfere with material transactions.
• Unforeseen Transfer Taxes could be incurred, for which RHI II, LLC is responsible.

Future Outlook

The restructuring aims to simplify Rocket Companies' corporate and capital structure, moving from a complex 'Up-C' model to a more streamlined two-class common stock system, with each share carrying one vote. This simplification is expected to enhance transparency and potentially improve the company's appeal to a broader investor base over time, especially as the new Class L shares become freely convertible to Class A shares.

Management Comments

• The Rocket Board has determined that it is in the best interests of Rocket and its stockholders, and declared it advisable, to approve and adopt the charter amendments and the issuance of Rocket Class L Common Stock.
• The Rocket Board has approved the execution, delivery, and performance of the Transaction Agreement and the consummation of the Transactions, including the Mergers and the DG Exchange.
• The Board of Directors of RHI has approved the Transaction Agreement and the Transactions, determined it is in the best interests of RHI and its shareholders, and resolved to recommend that RHI shareholders adopt the agreement.

Industry Context

This corporate restructuring by Rocket Companies aligns with a broader trend among companies that initially went public with complex 'Up-C' structures to simplify their corporate governance and capital structures. Such simplifications often aim to enhance transparency, improve liquidity for certain shareholder classes, and potentially broaden investor appeal by moving towards a more conventional one-share, one-vote model, even if significant control remains with founders. The move to reduce share classes and consolidate economic interests within the publicly traded entity can be seen as a step towards modernizing corporate governance, though the continued high concentration of voting power with Daniel Gilbert is a notable aspect.

Comparison to Industry Standards

• The collapse of the 'Up-C' structure is a common evolution for companies that initially adopted this structure for tax efficiency during their IPO, such as many private equity-backed or founder-controlled entities. This move generally aligns with best practices for public companies seeking to simplify their reporting and governance.
• The reduction of common stock classes from four to two, and the stated intent for each class to carry one vote, moves Rocket Companies closer to a single-class share structure, which is increasingly favored by institutional investors and corporate governance advocates over multi-class structures that concentrate voting power.
• Despite the simplification, Daniel Gilbert's retained beneficial ownership of 76.45% and continued majority voting power is significantly higher than the average for S&P 500 companies, where founder control, while present, is often diluted over time. This level of control is more comparable to other founder-led companies that maintain super-voting shares or similar mechanisms post-IPO, such as Meta Platforms (Mark Zuckerberg) or Berkshire Hathaway (Warren Buffett), though the specific mechanisms differ.
• The imposition of transfer restrictions on the new Class L shares (until June 30, 2026, and June 30, 2027) is a common practice in such restructurings to manage market supply and ensure an orderly transition for large blocks of shares.

Corporate Governance

Related Party Transactions

• The Transaction Agreement itself is a related party transaction involving Rocket, Rock Holdings Inc. (RHI), Daniel Gilbert, and RHI II, LLC, given their interconnected ownership and control.
• Amendment of the Tax Receivable Agreement (TRA) between Rocket, RHI, and Daniel Gilbert.
• Termination of the Exchange Agreement, dated August 5, 2020, by and among Rocket, RHI, Daniel Gilbert, and Holdings LP.
• Execution of an Indemnity Agreement between RHI II, LLC and Rocket.
• Entry into a Letter Agreement between Rocket and Daniel Gilbert, preserving certain information rights and restricting future amendments to Rocket's certificate of incorporation regarding corporate opportunities.
• Execution of an Irrevocable Proxy and Power of Attorney between Daniel Gilbert and Jennifer Gilbert, granting Daniel Gilbert sole voting power over Jennifer Gilbert's shares.
• Daniel Gilbert has entered into Voting Agreements with various individuals (William Banfield, Brian Brown, David Carroll, Jeffrey Eisenshtadt, Rob Kramer, Heather Lovier, Todd Lunsford, Richard Mandell, Jeff Morganroth, Matthew Rizik, Robert Walters, Lindsay Gross Revocable Living Trust, and William C. Emerson Trust) to vote their Class L Common Stock in the same manner as Daniel Gilbert.

Stakeholder Impact

• Shareholders (Class A): Will receive a special cash dividend of $0.80 per share and benefit from a simplified corporate structure, potentially leading to increased transparency and liquidity as Class L shares convert to Class A over time.
• Shareholders (RHI and Daniel Gilbert): Their economic interests in the Rocket Group will be consolidated directly into Rocket through the issuance of Class L Common Stock, simplifying their ownership structure and participation in the publicly traded entity.
• Employees: Rocket Community Fund employees not exclusively dedicated to Rocket Initiatives will be transferred to RHI II, LLC or another entity outside the RHI Acquired Group, along with associated liabilities.
• Management: Daniel Gilbert, as Chairman of the Board, will continue to exert significant influence over the company's management and policies due to his retained majority voting power.
• Regulatory Bodies: The restructuring involves compliance with SEC regulations (e.g., Schedule 14C filing, Rule 16b-3 exemptions) and state corporate laws.

Next Steps

• Closing of the Mergers and the DG Exchange.
• Filing of Certificates of Merger with the Michigan LARA.
• Filing of the First Charter Amendment and Restated Charter with the Delaware Secretary of State.
• Rocket to mail the Information Statement to its stockholders after obtaining Rocket Stockholder Consent and SEC review.
• RHI II, LLC and Rocket to enter into the Indemnity Agreement at the First Merger Effective Time.
• Rocket, RHI, and Daniel Gilbert to enter into an amendment to the Tax Receivable Agreement at the First Merger Effective Time.
• Daniel Gilbert to execute and deliver an IRS Form W-9 to Rocket.
• RHI to deliver a certificate regarding its non-United States real property holding corporation status to Rocket.
• Rocket and its Board to take steps to exempt dispositions/acquisitions of shares under Section 16(a) of the Exchange Act.
• RHI to cause RHI II, LLC or another entity outside the RHI Acquired Group to assume liabilities related to RHI RSUs and individual cash incentive arrangements.
• RHI to cause Rocket Community Fund employees not exclusively dedicated to Rocket Initiatives to be transferred to RHI II, LLC or another entity outside the RHI Acquired Group.

Key Dates

Keywords

Rocket Companies, Up-C structure, corporate restructuring, merger, stock dividend, capital structure, share classes, Daniel Gilbert, SEC filing, corporate governance, tax implications, Class L Common Stock, Class A Common Stock, Rock Holdings Inc., special dividend