Shareholders of Home Capital Group are being advised by leading proxy advisory firm Institutional Shareholder Services to vote against a deal that would see Warren Buffett’s Berkshire Hathaway increase its stake in the Toronto-based company.
Home Capital shares and prospects have improved since the American billionaire’s conglomerate announced in June that it would support the embattled alternative lender through an investment of $153 million, acquiring a 19.99 per cent stake in the company, and by providing it with a $2 billion line of credit.
The financial lifeline provided much-needed funding and helped restore investor confidence in Home Capital after the company faced a run on deposits by customers in April following allegations by regulators that it misled investors.
Berkshire Hathaway also agreed in June to invest a further $246.7 million, at $10.30 per share, which would increase its indirect stake in Home Capital to 38.4 per cent, pending shareholders approval in a vote on Sept. 12.
ISS says that at the time it was announced, the second round of equity investment from Berkshire seemed the best available alternative for stabilizing Home Capital.
But since then, ISS said, the company has made substantial progress such as board and management renewal, Ontario Securities Commission and class action settlements, asset sale, dividend suspension, repayment of Berkshire’s line of credit and restoration of deposit inflows to historical averages.