Warren Buffett’s bid to double his stake in Home Capital Group Inc. was rejected by shareholders of the Canadian mortgage lender in a September 12 vote.
About 89 per cent of investors voted against the offer, which would have boosted Berkshire Hathaway Inc.’s stake from about 20 per cent to 38 per cent. Stockholders including CIBC Asset Management had objected to the deal, arguing it would dilute the stock by selling shares to Berkshire at an almost 30 per cent discount.
“This decision on the second tranche 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,” Chairwoman Brenda Eprile said at a special shareholder meeting in Toronto after the vote, as quoted by Bloomberg.
Home Capital executives declined to comment further. Buffett didn’t immediately respond to a request for comment on the vote.
Berkshire Hathaway agreed to buy shares in two tranches in June when the troubled bank was facing a run on deposits after a regulator accused the company of misleading shareholders about falsified mortgage applications. The proposed $400 million investment included an initial purchase at $9.55 a share, followed by a second round at $10.30 each. The second tranche required approval from a majority of voting shareholders, excluding Berkshire.
“Home Capital has already benefited from the Buffett bump,” according to David Hillock, a 63-year-old retiree who voted against the Berkshire purchase. “To provide so many shares at such a deep discount dilutes the company-- it just didn’t seem worth it.” Hillock owns about 100,000 Home Capital shares, which he bought when the stock traded around $6 this year, more than doubling his investment to about $1.4 million.
30-year-old nurse and private investor Mathias Uy changed his vote just before the meeting.
“The original problem at Home Capital was a crisis of confidence and adding more money wouldn’t really solve the problem,” Uy said after the meeting. “The settlement of whatever lawsuits were pending largely fixed the crisis and the initial tranche of Buffett’s investment helped a lot.” Home Capital settled with the OSC and investors in a class action lawsuit last month.
Uy’s one concern when voting his 3,200 shares was the risk of Buffett taking profits and walking away from the company, but said he found solace in the CEO’s history of holding shares for the long term.
Buffett has already made about 40 per cent on his investment. Last month, he indicated his plan to stick with Home Capital even if shareholders voted against the second tranche.