Buffett’s Home Capital bid no easy choice
Conflicting advice ahead of vote
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.