With interest rates sky-high and Canadians steering clear of big purchases, the mortgage business is feeling the strain. Alternative mortgage lender Home Capital has certainly not been exempt.
Earlier today, the Canadian company announced entering into a tentative agreement that would see it bought out by Smith Financial Corporation. The deal values the company at approximately $1.7B and stipulates that Smith Financial -- the family holding company of First National Financial -- will pay $44 in cash per share that it doesn’t already own. The company currently owns 9.1% of Home Capital shares.
The Purchase Price represents a 63% premium to the closing price and a 72% premium to the volume weighted average trading price for the 20 days ending on November 18, 2022 on the Toronto Stock Exchange.
“The Board, together with our financial and legal advisors, conducted a thorough review of the proposal from SFC and concluded that the Transaction is in the best interests of the Company and fair, from a financial point of view, to shareholders,” Alan Hibben, Chair of the Board of Directors of Home Capital, said in the press release. “We are pleased to have reached an agreement that provides shareholders with compelling and certain value in the form of an all-cash offer.”
Billionaire financier Stephen Smith of the Smith Financial Corporation also commented, calling Home Capital a “strategic asset.”
“Having followed the development of the business for three decades, I can attest to Home Capital’s strong partnerships with mortgage brokers and great customer relationships. I’m also impressed with the direction the Company has taken to build quality assets and enduring advantages in its chosen industry segments. I look forward to owning another business with a bright future.”
This is not the first time Home Capital has found itself fielding takeover offers. Five years ago, Warren Buffett’s Berkshire Hathaway Inc. bought the company out, saving it from collapse, and more recently, Home Capital rejected an unsolicited offer from another company in August, citing that it was too low.
Smith Financial’s offer is looking more likely to stick, but it's soon to tell. The agreement is still subject to shareholder and other regulatory approvals and includes a “go-shop period” until December 30. In other words, Home Capital can terminate Smith Financial’s offer in lieu of a better one. In that scenario, Home Capital would be liable for a $25M termination fee. That fee is increased to $50M if Home Capital accepts a rival offer more than five days after December 30.
