HCG vote on 2nd Buffett tranche set for Sept. 12

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 nonbank 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 its shareholders.

In the days after the Berkshire Hathaway announcement, 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 retreated, closing Monday at $13.80.

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.

Shareholder David Taylor, the founder and chief investment officer of Taylor Asset Management Inc. has been a vocal opponent of the added dilution, saying last month: “We already have Buffett, and the aura of Buffett.”

But on Monday, Taylor said in an email that he would “decide come time of vote” which way to go.

Hugo Chan, chair and chief executive of Shanghaibased 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.”

“I would imagine for some, the recent decline in stock price may be a motivation to vote in favour of the second tranche given the perceived smaller discount to market,” Chan said in an email.