Buffett’s Berkshire to Substantially Exit Home Capital Stake
(Bloomberg) -- Warren Buffett’s role in the saga of Home Capital Group Inc., the embattled Canadian alternative lender, is coming to a close, with Berkshire Hathaway Inc. saying it will “substantially exit” its investment in the company. Home Capital shares plunged.
- More than a year after taking a stake in Home Capital to shore up confidence after a near collapse, Buffett’s Berkshire Hathaway will hold less than 10 percent of the company when the lender completes a repurchase of shares on Friday, according to a statement Wednesday. Home Capital shares dropped as much as 19 percent, their biggest intraday decline since April 2017.
- Buffett swooped in last year to take a stake in the company and provide it with a C$2 billion ($1.5 billion) credit line, which replaced an existing emergency credit facility. The bet paid off: The original purchase of the shares was at C$9.55 each in June of 2017, and Friday’s repurchases will be at a price of at least C$16.50, according to a separate statement. That represents a gain of 73 percent.
- Still, the billionaire investor didn’t get all he had hoped for in the deal. He had agreed to buy shares in two transactions, one of which required shareholder approval. That bid, which would have doubled his stake, was rejected in September 2017.
- That failed effort and the repayment of the credit line mean the investment is “now not of a size to justify our ongoing involvement,” said Buffett, whose company was Home Capital’s largest shareholder, with a 20 percent stake, prior to the planned sale. He isn’t leaving on sour terms. The billionaire praised Home Capital’s leadership and said Berkshire will continue to “cheer from the sidelines,” he said in the statement.
- Home Capital’s management team found out about Berkshire’s plans on Tuesday after the close of trading. The company is doing “fine” and is optimistic about 2019, Chief Executive Officer Yousry Bissada said in an interview.
- “Our volumes have continued to go up in 2018. We expect to continue on that path for 2019,” Bissada said by phone. “With more efficient capital behind us, we expect it’ll be a better return for shareholders, and we’re going to continue to fine-tune capital.”
- Read the statement here.
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