BUFFETT REBUFFED, LENDER REGROUPS

Shareholders reject Berkshire’s second tranche

TORONTO • Home Capital Group Inc. officials pledged to continue rebuilding the battered mortgage lender Tuesday after shareholders overwhelmingly rejected a second investment in the company by Warren Buffett’s Berkshire Hathaway at a price below the current share value.

Only 11.21 per cent of votes cast were in favour of the additional investment of nearly $247 million, which would have boosted Buffett’s stake to 38.4 per cent from 19.9.

Home Capital’s board of directors had recommended approving the second tranche, which was negotiated as part of the initial investment in June but required a shareholder vote.

Brenda Eprile, chair of Home Capital, said the company remains “grateful” to have Berkshire as a major shareholder, and suggested the vote reflected the mortgage loan company’s “diminished need for capital” after an eventful year.

Eprile, who was the only Home Capital official to speak at the meeting Tuesday morning, said the company would remain focused on building deposits to shore up funding for new loans.

Don Johnson, a former Bank of Montreal mergers and acquisitions specialist whose email to Buffett triggered the initial investment in the Canadian lender, said he believes the rejection of the additional tranche stemmed primarily from concerns about short-term dilution. The $10.30 a share price negotiated with Buffett in June is below the $13 to $14 range where Home Capital stock has been trading for the past couple of months.

“I was disappointed,” Johnson said shortly after the vote, adding that he believes the larger stake would have given Buffett more reason to help Home Capital in the months and years ahead.