Buffett Fails in Bid to Boost Stake in Canada's Home Capital

(Bloomberg) -- Warren Buffett’s bid to double his stake in Home Capital Group Inc. was rejected by shareholders of the Canadian mortgage lender in a vote Tuesday.

About 89 percent of investors voted against the offer, which would have boosted Berkshire Hathaway Inc.’s stake to 38 percent from about 20 percent. 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 percent 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.

Home Capital executives declined to comment further. Buffett didn’t immediately respond to a request for comment on the vote. The stock was little changed at C$14.06 at 12:21 p.m. in Toronto after being halted for the vote. It’s down 55 percent this year.

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 C$400 million ($330 million) investment included an initial purchase at C$9.55 a share, followed by a second round at C$10.30 each. The second tranche required approval from a majority of voting shareholders, excluding Berkshire.

‘Wow, Great’

Advisory firms offered diverging views on how unitholders should vote. Glass Lewis & Co. recommended they back the second tranche because the board of directors supported the investment. Institutional Shareholder Services Inc. shot down the deal because they said it offered no substantial benefits and would dilute the stock by 30 percent.

The majority of investors agreed. As Eprile read the vote tally, a shareholder shouted “Wow, great!" amid a smattering of applause in the room with three dozen people.

“Home Capital has already benefited from the Buffett bump," said 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 says he owns about 100,000 Home Capital shares, which he bought when the stock traded around C$6 this year, more than doubling his investment to about C$1.4 million.

Nurse and private investor Mathias Uy, 30, changed his vote just before the meeting. Originally he voted for the deal, along with the board but changed his mind when he read the ISS report.

Long Term

“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 percent on his investment.

Last month, Buffett said he planned to stick with Home Capital even if shareholders voted against the second tranche.

“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."

To contact the reporter on this story: Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net.

To contact the editors responsible for this story: Daniel Taub at dtaub@bloomberg.net, Jacqueline Thorpe at jthorpe23@bloomberg.net, David Scanlan