Buf­fett’s Home Cap­i­tal bid no easy choice

Con­flict­ing ad­vice ahead of vote

The Hamilton Spectator - - BUSINESS - KATIA DMITRIEVA

TORONTO — Home Cap­i­tal Group Inc. share­hold­ers are get­ting con­flict­ing ad­vice from prom­i­nent ad­vi­sory firms on whether to sup­port War­ren Buf­fett’s bid to boost his stake in the Cana­dian mort­gage lender.

In­sti­tu­tional Share­holder Ser­vices Inc. rec­om­mends share­hold­ers vote against a sec­ond tranche in­vest­ment from Berk­shire Hath­away Inc., say­ing the bid of­fers only nom­i­nal ben­e­fits and will di­lute the stock’s value. Glass Lewis & Co. said in­vestors should vote in favour be­cause the board of direc­tors sup­ports the deal and their plans for us­ing the pro­ceeds are “rea­son­able.”

Home Cap­i­tal shares soared in June af­ter Berk­shire said it would pro­vide a $2 bil­lion credit line and buy up to 38 per cent of the strug­gling al­ter­na­tive mort­gage com­pany. The of­fer in­cluded an ini­tial in­vest­ment of $153 mil­lion for a 20 per cent stake, and an ad­di­tional $247 mil­lion share of­fer, sub­ject to share­holder ap­proval. Berk­shire is now the largest in­vestor in the com­pany.

The sec­ond tranche of­fer of $10.30 a share goes to a share­holder vote Sept. 12. It needs the sup­port of a ma­jor­ity of share­hold­ers, ex­clud­ing the Berk­shire shares.

The sale of the ad­di­tional stake to Berk­shire comes at a cost and “seems to over­shadow the po­ten­tial in­cre­men­tal im­prove­ments in in­vestor con­fi­dence and in sta­bi­liza­tion of the com­pany’s busi­ness that it might bring,” ISS said in the re­port. ISS flagged that if the sec­ond deal is ap­proved, the shares would be di­luted by 30 per cent.

Glass Lewis said that “de­ci­sions re­gard­ing a com­pany’s busi­ness op­er­a­tions, such as fi­nanc­ings, are best left to the board.”

Toronto-based Home Cap­i­tal didn’t have an im­me­di­ate com­ment through a spokesper­son.

When asked on Bloomberg Tele­vi­sion Wed­nes­day if the ISS re­port was dis­cour­ag­ing him or would prompt him to walk away from his in­vest­ment, Buf­fett said “no, not re­ally.”

“We knew it’d be sub­ject to the vote of the share­hold­ers, and if the share­hold­ers vote it, we buy it, and if the share­hold­ers don’t vote it we don’t buy it,” Buf­fett said. “We knew that could go ei­ther way.”

Home Cap­i­tal rose 1.3 per cent to $13.41 Cdn at 1 p.m., giv­ing Buf­fett al­most a 40 per cent gain on his ini­tial in­vest­ment. The stock is still down 57 per cent on the year.

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