Home Capital Rejects Takeover Bid 5 Years After Buffett’s Rescue

Home Capital Group Inc., the Canadian mortgage lender that Berkshire Hathaway Inc. helped rescue five years ago, says it turned down an approach from an unnamed buyer because the price was too low.

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(Bloomberg) — Home Capital Group Inc., the Canadian mortgage lender that Berkshire Hathaway Inc. helped rescue five years ago, says it turned down an approach from an unnamed buyer because the price was too low. 

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Toronto-based Home Capital didn’t disclose the exact amount of the offer but said it was more than C$28.60 a share — the maximum price on a stock buyback it recently announced. That means the takeover approach valued the company at at least C$1.2 billion ($930 million). The shares closed Friday at C$28.47 in Toronto. 

Home Capital shares have dropped 27% this year and are trading below book value as Canada’s housing market encounters severe headwinds because of rising interest rates. Prices have been sliding for months, especially in urban markets in Ontario, the province to which Home Capital has the most exposure. 

Read more: Canadian Housing Correction Accelerates, Prices Seen Falling 25%

The board determined the cash offer “undervalues the company’s shares and falls short of reflecting Home Capital’s intrinsic value and its future growth potential,” Home Capital said in a statement Monday. The unnamed third party had “previously made an unsolicited, non-binding proposal” to buy the company but that offer was subsequently terminated,” it said. 

Home Capital consulted BMO Capital Markets and TD Securities, as well as law firm Torys LLP, for advice. 

The company, which primarily serves borrowers who can’t easily qualify for mortgages from Canadian banks, nearly collapsed in 2017 after it suffered a run on deposits. Warren Buffett’s Berkshire bought an equity stake of nearly 20% and provided an emergency credit line to stabilize the firm. Berkshire exited most of its stake at a significant profit in 2018. 

(Updates with additional context in third paragraph)