Home Capital shareholders reject Buffett’s investment bid
Home Capital Group Inc. shareholders overwhelmingly rejected an additional investment in the company by Warren Buffett’s Berkshire Hathaway, which would have boosted his stake to 38.4 per cent from 19.9 per cent.
Only 11.21 per cent of votes cast were in favour of the additional investment.
Brenda Eprile, chair of Home Capital, said the company remains “grateful” to have Berkshire as a major shareholder, and suggested the shareholder vote reflected the mortgage loan company’s “diminished need for capital” after an eventful year.
But Don Johnson, a former Bank of Montreal mergers and acquisitions specialist whose e-mail to Buffett triggered the initial investment in the Canadian lender, said shareholders most likely rejected the second tranche investment due to short-term concerns about dilution.
Buffett was poised to buy the shares at $10.30, significantly below where they are trading.
“I was disappointed,” Johnson said shortly after the vote, adding that he believes the larger investment would have given Buffett more reason to help Home Capital.
“They would definitely be there in the long term” to provide capital and whatever else the lender needs to succeed, he said.
Johnson, who met Buffett more than 20 years ago when the renowned global investor was looking at an opportunity in Canada, said he doubts Berkshire Hathaway will make another attempt to increase its stake in Home Capital.
“I’d be surprised, having been turned down this time,” he said.
Though Buffett is known as a long-term investor, Johnson said it’s not clear whether Berkshire would remain committed to the small investment.
Selling is “a possibility, but only time will tell,” he said.
Home Capital’s board of directors had recommended that shareholders vote in favour of the increased Buffett investment.
Buffett indicated last month that a rejection by shareholders of his plan to take a larger stake in Home Capital would not cause him to walk away.
“We knew that could go either way,” he said on Bloomberg Television. “We’d like to buy the stock but if they vote it down, if the shareholders vote it down, we’ll be fine.”
The lender faced a crisis of confidence last spring amid executive departures and regulatory accusations of misleading disclosure to shareholders. Skittish depositors pulled their money out, choking off the pipeline of new mortgage loans.
Last month, Home Capital agreed to pay $29.5 million to settle with the Ontario Securities Commission and also settle a class action lawsuit related to the same disclosure issues.
At Tuesday morning’s meeting, Eprile noted that there had also been asset sales and new executive appointments in the past few months to shore up resources and move forward.
Home Capital recently reported that it has $4.22 billion in liquidity, including a $2 billion line of credit from Berkshire Hathaway.
“This meeting marks the end of an eventful chapter in the corporation’s history,” she said.
In a statement issued by Home Capital after the meeting, Eprile said the company respects the decision of shareholders. She reiterated the view that it sent “a clear message that the majority of ... shareholders believe that Home Capital’s improved deposit inflows and liquidity position diminish the need for additional capital.”
Hugo Chan, whose firm Kingsferry Capital Management Group Ltd. was among the shareholders in favour of Berkshire Hathaway’s increased stake in Home Capital, said Kingsferry will continue to hold shares in the lender for the long term.
“Despite the unfavourable result from the vote, we continue to believe Home Capital has a bright future ahead with the renewed management and board, a well-capitalized balance sheet, and strong support from Berkshire Hathaway,” Chan, who is Kingsferry’s chairman and chief investment officer, said in an e-mailed statement to the