Home Capital Shareholders Reject Buffett's Expanded Stake
September 12 2017 - 12:28PM
Dow Jones News
By Bowdeya Tweh
Shareholders in Canada's Home Capital Group Inc. voted down a
plan for Berkshire Hathaway Inc. to increase its stake in the
company, dealing a blow to investor Warren Buffett's rescue package
for the troubled home-mortgage lender.
Berkshire Hathaway in June agreed to indirectly acquire a 38.39%
stake in Home Capital as part of a rescue package that included a
loan of 2 billion Canadian dollars ($1.5 billion), which has since
been repaid. Home Capital board member Alan Hibben told The Wall
Street Journal in June that while the company had weighed several
financing offers, it opted for Mr. Buffett's because the plan could
help restore confidence in the company after a deposit flight.
But shareholders holding more than 88% of Home Capital shares
voted at a special meeting held Tuesday not to allow the company to
expand its stake.
Brenda Eprile, who chairs Home Capital's board, said the board
respects the shareholders' decision.
"This decision is a clear message that the majority of our
shareholders believe that Home Capital's improved deposit inflows
and liquidity position diminish the need for additional capital,"
she said. "We are pleased to still have Berkshire as our largest
shareholder."
The deal was structured in two tranches. The first resulted in
Berkshire, through its subsidiary Columbia Insurance Co., spending
$153.2 million to acquire a 19.99% stake in Home Capital. The
remaining stake, expected to cost about $246.8 million, was subject
to the shareholders' vote.
Following the vote, trading in Home Capital's stock was
temporarily halted Tuesday morning on the Toronto Stock Exchange.
The halt was requested by the country's market regulator as part of
its fair and orderly market policies.
Berkshire had said it would vote just 25% of the lenders' stock,
to comply with Canadian rules that restrict investors from voting
more than a quarter of a bank's shares.
Proxy-advisory firm Institutional Shareholder Services Inc. had
recommended investors vote against Berkshire's acquisition of a
larger stake in the company. However, Mr. Buffett, in an Aug. 30
interview with Bloomberg, said he wasn't dissuaded by ISS's
action.
"So we'd like to buy the stock, but if they vote it down, if the
shareholders vote it down, we'll be fine," said Mr. Buffett,
according to an interview transcript.
A different proxy adviser, Glass Lewis & Co., recommended
shareholders approve the deal.
Before the capital infusion, Home Capital had been facing a
liquidity crisis after depositors withdrew money at a rate the
company found to be alarming. The accelerated pace of withdrawals
followed allegations from Canada's leading securities regulator
earlier this year that the company, its founder, former chief
executive and its chief financial officer misled investors about
the scale of a mortgage-application fraud Home Capital uncovered in
2014.
The company and the executives settled with the Ontario
Securities Commission for C$29.5 million, without admitting any
wrongdoing.
Home Capital has taken steps to shore up its balance sheets in
recent months, including securing a C$2 billion credit line through
a syndicate of Canadian banks and selling half of its commercial
mortgages for C$1.16 billion to a unit of private-equity investor
KingSett Capital.
Home Capital is one of the country's largest mortgage lenders to
higher-risk borrowers, many of them immigrants or self-employed
workers with limited credit histories.
Cara Lombardo contributed to this article.
Write to Bowdeya Tweh at Bowdeya.Tweh@wsj.com
(END) Dow Jones Newswires
September 12, 2017 12:13 ET (16:13 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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