BUFFETT FACES SHAREHOLDER RESISTANCE
Some investors say Berkshire offer to buy more shares dilutive and not needed
TORONTO
IT’S not every day shareholders say no to Warren Buffett. Yet that’s exactly what Home Capital Group Inc investors may do this month, adding to a series of rare setbacks for the billionaire investor this year.
Buffett’s Berkshire Hathaway Inc needs shareholder approval to boost its stake in Home Capital, part of a C$2.4 billion (RM8.18 billion) cash and stock lifeline for the Canadian lender that was on the verge of collapse just two months ago.
Now that the alternative mortgage company appeared on sounder footing and its deposit base was growing, some investors said the Berkshire offer to buy more shares was dilutive and not needed.
Shareholders will vote on September 12 on the second tranche investment, which would raise Berkshire’s stake to 38 per cent from 20 per cent.
“It’s unnecessary,” said Michael Sprung, president of Sprung Investment Management, who intended to vote against the offer.
“The balance sheet is being repaired, the company is now moving forward. I don’t believe in issuing shares at a time when it’s dilutive to shareholders. If I was a large institutional shareholder I’d probably be voting against this as well.”
A rejection by Home Capital shareholders would represent the latest rebuff for Buffett this year. Buffett lost his US$9 billion (RM38.43 billion) bid to acquire Oncor Electric Delivery Co after Sempra Energy agreed to buy the Texas utility for more money.
In the Home Capital deal, investors are increasingly coming out against Berkshire’s offer, while Institutional Shareholder Services Inc (ISS) recommended shareholders vote against it. ISS said the bid offered only nominal benefits and would dilute the stock by 30 per cent.
Shareholders that planned to vote against the proposal included CIBC Asset Management, according to people familiar with the bank’s plans.
The lender is one of the largest Home Capital shareholders, with an almost eight per cent stake, according to Bloomberg data.
David Taylor, founder and chief investment officer at Taylor Asset Management Inc, said he opposed the deal and spoke with ISS about his concerns according to the ISS report.
Buffett’s involvement in the company had already had its intended effect, and the firm likely won’t face this kind of crisis again, said Ross Healy, chairman of Strategic Analysis Corp.
“I’m not sure what it is that would shake lenders’ confidence in the company again,” said Healy, whose firm owned Home Capital shares and was voting against the deal. “The odds of an earth-shaking event are fundamentally thin.”
Buffett’s involvement came at a crucial time for Home Capital. The Ontario Securities Commission had accused the lender of misleading shareholders about falsified mortgage applications.
If shareholders vote against the second tranche, Buffett said he would remain an investor.
“We don’t mind. We knew that could go either way,” he said on Wednesday on Bloomberg Television after the ISS report was released.
“We’d like to buy the stock but if they vote it down, if the shareholders vote it down, we’ll be fine.”
Buffett has already made money from Home Capital, at least on paper. Based on the current share price of C$13.36, Berkshire has posted a 40 per cent gain on the shares bought for C$9.55 each. The offer for the second round of shares is at C$10.30. Bloomberg