Home Capital tranche vote set for September

TORONTO Home Capital Group Inc. shareholders will decide whether the alternative mortgage lender’s biggest investor and marquee backer Warren Buffett should be allowed to buy a bigger piece of the pie in a special meeting set for Sept. 12, according to a regulatory filing.

The meeting will be held in Toronto, and shareholders of Canada’s biggest non-bank lender as of Aug. 8 will be able to participate, according to the filing posted Monday.

Home Capital announced on June 21 that Buffett’s Berkshire Hathaway Inc. had agreed to acquire $400 million worth of Home Capital’s common shares on a private placement basis in two tranches, for an average price of $10 per share. News of Buffett’s involvement sent shares of Home Capital up by 27 per cent the next day to $19, and has appeared to allay some of the concerns of depositors who had been fleeing the company’s savings accounts.

The initial tranche of more than 16 million shares for $153 million, giving Buffett about a 20 per cent stake, was completed on June 29 and did not require shareholder approval due to use of a special “financial hardship” provision of the Toronto Stock Exchange.

Buffett’s additional option to acquire 23.9 million common shares for about $246.8 million (or $10.30 per share), however, requires approval from a majority of investors.

Home Capital shareholders had mixed views on whether additional skin in the game for the Oracle of Omaha would be positive for investors given that shares had risen to nearly double the $10 price Buffett had agreed to.

However, the shares have since come back down, closing at $13.80 on Monday, down 1.5 per cent.

Jaeme Gloyn, an analyst with National Bank Financial, said a downward trajectory for the stock increases the likelihood of approval of Berkshire Hathaway’s additional share purchase.

“The more the stock trades down, the more likely it is that shareholders are going to approve that second Buffett tranche, which is dilutive,” he said.

Hugo Chan, chairman and chief executive of Shanghai-based Kingsferry Capital which owns 3.5 per cent of Home Capital, said Monday his view continues to be that the benefits of Berkshire Hathaway’s investment “outweigh the cost of dilution.”