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Sep 14, 2022

Home Capital falls well short of $115M share buyback plan

Home Capital gets buyout approach

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Home Capital Group Inc.’s plan to buy back as much as $115 million worth of its own shares has fallen well short of expectations.

In a release Wednesday, Home Capital said it secured about 1.5 million shares for repurchase, to the tune of $44.3 million ($28.60 per share), significantly less than its intended goal.

In a release, Home Capital president and CEO Yousry Bissada said that lack of interest could be seen as investor confidence in the mortgage lender.

“While we were able to return $44.3 million to participating shareholders, the fact that the tender offer was not fully subscribed indicates that many of our shareholders see the potential for additional upside value in our shares,” he said.

“Given our robust capital levels, we will continue with our efforts to create value through our capital program while retaining sufficient capital to support our business growth and maintain financial flexibility.”

The share buyback was announced August 8 as a Modified Dutch Auction – where investors tender shares for potential purchase at their chosen price in a given range by the company, in this case between $25.20 and $28.60 per share – but shares of the company have risen to the high-end of the range since the initial announcement.

In part, that rally can be attributed to news the alternative lender turned down an approach from an unnamed buyer because the price was insufficient, which the company announced August 16. The bid would have valued the company at less than the high-end of the buyback range – in all, about $1.2 billion – and was rejected out of hand. Shares rallied about 10 per cent after news of the bid.

In an email to BNN Bloomberg, Veritas analyst Nigel D’Souza said that bid and the recent price action in Home Capital shares likely contributed to the undersubscribed buyback.

“[Home Capital] was trading above the max bid price of the [significant issuer bid] for a period of time,” he said.

“Additionally, HCG disclosed a private bidder for HCG above the max bid price of the NCIB. Entirely possible that a portion of current HCG shareholders would rather hold onto shares for a potentially higher bid from a buyer than sell the shares under the SIB.”