First note that the input of $\hat{U}^\sim (s)$ is the output of $\hat{U}(s)$. Therefore,
$$\begin{align}
\dot{x}_1 &= A x_1 + B u \\
y &= C x_1 + D u \\
&\\
\dot{x}_2 &= -A^* x_2 - C^* y \\
z &= B^* x_2 + D^* y
\end{align}$$
Now, put $y$ in the second system to obtain
$$\begin{align}
\dot{x}_2 &= -A^* x_2 - C^* C x_1 - C^* D u \\
\dot{x}_1 &= A x_1 + B u \\
z &= B^* x_2 + D^* C x_1 + D^* D u
\end{align}$$
First note that the input of $\hat{U}^\sim (s)$ is the output of $\hat{U}(s)$. Therefore,
$$\begin{align} \dot{x}_1 &= A x_1 + B u \\ y &= C x_1 + D u \\ &\\ \dot{x}_2 &= -A^* x_2 - C^* y \\ z &= B^* x_2 + D^* y \end{align}$$
Now, put $y$ in the second system to obtain $$\begin{align} \dot{x}_2 &= -A^* x_2 - C^* C x_1 - C^* D u \\ \dot{x}_1 &= A x_1 + B u \\ z &= B^* x_2 + D^* C x_1 + D^* D u \end{align}$$