(Bloomberg) -- Home Capital Group Inc. shareholders are getting conflicting advice from prominent advisory firms on whether to support Warren Buffett's bid to boost his stake in the Canadian mortgage lender.
Institutional Shareholder Services Inc. recommends shareholders vote against a second tranche investment from Berkshire Hathaway Inc., saying the bid offers only nominal benefits and will dilute the stock's value. Glass Lewis & Co. said investors should vote in favor because the board of directors supports the deal and their plans for using the proceeds are “reasonable."
Home Capital shares soared in June after Berkshire said it would provide a C$2 billion ($1.6 billion) credit line and buy up to 38 percent of the struggling alternative mortgage company. The offer included an initial investment of C$153 million for a 20 percent stake, and an additional C$247 million share offer, subject to shareholder approval. Berkshire is now the largest investor in the company, according to data compiled by Bloomberg.
The second tranche offer of C$10.30 a share goes to a shareholder vote on Sept. 12 and needs the support of a majority of shareholders, excluding the Berkshire shares.
The sale of the additional stake to Berkshire comes at a cost and “seems to overshadow the potential incremental improvements in investor confidence and in stabilization of the company's business that it might bring," ISS said in the report. ISS flagged that if the second deal is approved, the shares would be diluted by 30 percent.
Glass Lewis said that “decisions regarding a company's business operations, such as financings, are best left to the judgment of the board."
Toronto-based Home Capital didn't have an immediate comment through a spokesman.
When asked on Bloomberg Television Wednesday if the ISS report was discouraging him or would prompt him to walk away from his investment, Buffett said “no, not really."
“We knew it'd be subject to the vote of the shareholders, and if the shareholders vote it, we buy it, and if the shareholders don't vote it we don't buy it," Buffett said. “We knew that could go either way."
Home Capital rose 1.3 percent to C$13.41 at 1 p.m. in Toronto, giving Buffett almost a 40 percent gain on his initial investment. The stock is still down 57 percent on the year.
--With assistance from Noah Buhayar
To contact the reporter on this story: Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net.
To contact the editors responsible for this story: Daniel Taub at dtaub@bloomberg.net, David Scanlan, Jacqueline Thorpe
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