The founder of one of Home Capital’s five largest shareholders has confirmed that he will be among those opposing the second equity infusion from Berkshire Hathaway, arguing that it would be “highly dilutive” and that Home Capital does not need it.
The second deal would involve Home Capital issuing about $254 million of shares to Berkshire at $10.30 a share—a risky move according to David Taylor of Taylor Asset Management, as aside from the share price offered being below current trading price, it is also far below the trading price when the deal was announced, and significantly below net asset value.
“I cannot understand why any investor would vote for this deal. Of course, why would management backed by three investment dealers (paid for, of course, by the shareholders) push me to do this deal? The whole tale including this, reads like a bad novel,” Taylor told the Financial Post late last week.
He added that while giving Berkshire the option to purchase a second tranche seemed a good idea back when the deal was still being negotiated, the situation has drastically changed since then. Home Capital stocks have fallen, after reaching a high of $19 in the wake of Berkshire’s $2-billion line of credit.
“Given how things have improved so significantly and so much faster than we thought, it’s not prudent. Times have changed and we don’t need Berkshire’s second tranche,” Taylor explained.
Among the positive developments over the past few months cited by Taylor included the repayment of the $2 billion to Berkshire, a selling of assets, and a rebound in GICs sales.
“Given that shareholders have the opportunity to vote now and given that things have changed so drastically, I don’t see why we need to vote in favour of the deal.”
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