Berkshire Hathaway to invest $400M for 38.39% of Home Capital

Berkshire Hathaway Inc. has agreed to indirectly acquire $400 million of Home Capital Group Inc. (TSX: HCG) common shares on a private placement basis and provide a new $2 billion line of credit facility to Home Trust Company, replacing the line of credit provided by Healthcare of Ontario Pension Plan (HOOPP)

Berkshire Hathaway, through its wholly-owned subsidiary Columbia Insurance Company, has agreed to make an initial investment of 16,044,580 common shares on a private placement basis, representing an approximate 19.99% equity stake on a post-issuance basis (25% on a pre-issuance basis) at $9.55 per share for $153,225,739.

Subject to TSX approval for reliance on the “financial hardship” provisions of the TSX Company Manual, the initialiInvestment will not require approval of the company’s shareholders and is expected to close on June 29, 2017.

Berkshire Hathaway has agreed to make an additional investment of $246,774,261 to acquire 23,955,420 common shares at $10.30 per share on a private placement basis, which, together with its Initial Investment, would represent an approximate 38.39% equity stake in the company. Berkshire has agreed that for as long as it owns more than 25% of the outstanding common shares it will only be entitled to vote that number of shares that represents 25% of the outstanding shares, unless and until it obtains the required regulatory approvals to enable it to vote greater than a 25% interest.

The additional investment will be subject to approval by not less than a majority of the votes cast by the company’s shareholder.

“Berkshire’s investment in Home Capital is a strong vote of confidence in the fundamental, long-term value of our business,” said Brenda Eprile, Chair of the Home Capital Board of Directors. “We are pleased to partner with such a renowned institution in a transaction that we believe will reward all our investors for their patience and loyalty by enhancing the value of Home Capital over time.”

“Since April, the Board has been diligently exploring solutions to restore the confidence of depositors and shareholders and to create stability and value for all of the Company’s stakeholders. This is a very important step on that road. This investment from Berkshire not only addresses Home Capital’s near-term requirements for additional liquidity and a lower-cost credit agreement, but also facilitates what the Board feels is the best available path to long-term success,” added Epril.

“Home Capital’s strong assets, its ability to originate and underwrite well-performing mortgages, and its leading position in a growing market sector make this a very attractive investment,” said Warren E. Buffett, Berkshire Chairman and Chief Executive Officer.

After considering numerous alternative proposals, the Board determined that the Berkshire Hathaway transaction provides current shareholders with the best available combination of transaction certainty and the potential for enhanced shareholder value, and is in the best interests of the company, taking into account the interests of its stakeholders including depositors.

BMO Capital Markets and RBC Capital Markets acted as financial advisors, and Blair Franklin Capital Partners has provided an independent fairness opinion, to Home Capital in connection with the transaction.

photo credit: Paul Brennan via pixabay

Ted Liu

Ted Liu, M.Sc. (Mining, Queen's), MBA (Finance, Toronto), is the Editor of Private Capital Journal, CanadaMetals.ca, TechWire.ca, and the former Editor of Canadian Private Equity. Ted has been passionately tracking Canadian private capital industry since 1992, having most recently served as Research Director for The Canadian Venture Capital and Private Equity Association (CVCA).

Ted is the architect of CVCA infobase, and is the architect of CPE Media's Financings.ca, Canada's most sophisticated and advanced all private capital and public market financing database.