Home Capital Signs Definitive Agreement to Be Acquired by Smith Financial Corporation

TORONTO--(BUSINESS WIRE)--
Home Capital Group Inc. (“Home Capital” or the “Company”) (TSX: HCG) today announced that it has entered into a definitive agreement (the “Arrangement Agreement”) to be acquired by a wholly-owned subsidiary (the “Purchaser”) of Smith Financial Corporation (“SFC”), a company controlled by Stephen Smith. Under the terms of the Arrangement Agreement, subject to shareholder and other customary approvals, the Purchaser will acquire the issued and outstanding common shares of Home Capital that SFC does not already own for $44.00 in cash per share (the “Purchase Price”), subject to increase as described below (the “Transaction”).

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 Transaction values the equity of the Company at approximately $1.7 billion.

Alan Hibben, Chair of the Board of Directors of Home Capital, commented “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. We are pleased to have reached an agreement that provides shareholders with compelling and certain value in the form of an all-cash offer.”

Yousry Bissada, President and CEO of the Company, added, “This Transaction represents tangible recognition of the value and strength of our organization. We look forward to this exciting new chapter for Home Capital.”

“With its talented workforce, diversified presence across Canada, trusted positions as a lender and deposit-taker and 36-year operating history, Home Capital is a strategic asset,” said Mr. Smith. “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.”

Transaction Details

The Transaction will be implemented by way of a court-approved plan of arrangement under the Business Corporations Act (Ontario) and will require the approval of 66 2/3% of the votes cast by Home Capital shareholders at a special meeting. In addition, the Transaction is subject to the receipt of court approval, regulatory approvals and other customary closing conditions for transactions of this nature. The Transaction is not subject to a financing condition and SFC, which currently owns approximately 9.1% of the issued and outstanding common shares of the Company, has provided a full and unconditional guarantee in favor of Home Capital with respect to the obligations of the Purchaser under the Arrangement Agreement.

The Arrangement Agreement includes a go-shop period extending until December 30, 2022 (the “Go-Shop Period”), during which Home Capital, with the assistance of its financial advisors, will be permitted to actively solicit, evaluate and enter into negotiations with third parties that express an interest in acquiring the Company. Following expiry of the Go-Shop Period, the Company will be subject to customary non-solicitation covenants with “fiduciary out” provisions. If, subject to a “right to match” in favour of the Purchaser, the Company terminates the Arrangement Agreement to accept a Superior Proposal (as defined in the Arrangement Agreement) during, or within five business days following the expiry of, the Go-Shop Period, a $25 million termination fee is payable by the Company to the Purchaser. If, subject to a “right to match” in favour of the Purchaser, the Company terminates the Arrangement Agreement to accept a Superior Proposal more than five business days after the expiry of the Go-Shop Period, a $50 million termination fee is payable by the Company to the Purchaser. There can be no assurance that a Superior Proposal will be made as a result of the go-shop process or otherwise.

The Transaction is subject to the receipt of regulatory approvals under the Bank Act (Canada), the Trust and Loan Companies Act (Canada) and the Competition Act (Canada). A reverse termination fee of $60 million is payable by the Purchaser to the Company if the required regulatory approvals are not obtained on or before the outside date specified in the Arrangement Agreement, currently November 20, 2023, but which may be extended by up to an additional 90 days in certain circumstances.

The Transaction is expected to close in mid-2023. If the Transaction closes on or after May 20, 2023, the Purchase Price will be increased by an amount equal to $0.00273973 per share in cash per day up to and including the day prior to the closing of the Arrangement (equivalent to approximately $0.25 per share for every three-month delay beyond May 20, 2023).

Home Capital intends to continue paying its regular quarterly cash dividends of $0.15 per share in the ordinary course.

The foregoing summary is qualified in its entirety by the provisions of the Arrangement Agreement, a copy of which will be filed on SEDAR at www.sedar.com. Home Capital will mail a management information circular to its shareholders in connection with the special meeting to consider and vote on the Transaction, a copy of which will also be filed on SEDAR at www.sedar.com.

Board Recommendation and Fairness Opinions

Home Capital’s board of directors unanimously approved the Arrangement Agreement and, in consultation with its financial and legal advisors, has determined that the Transaction is in the best interest of Home Capital and is fair to its shareholders. The board unanimously recommends that Home Capital shareholders vote in favour of the Transaction. Home Capital’s directors and senior officers have entered into voting support agreements with the Purchaser pursuant to which, among other things, they have agreed to vote all of the common shares owned or controlled by them in favour of the Transaction.

Each of BMO Capital Markets, TD Securities and Deloitte LLP has provided an opinion to the board that, as of the date thereof and subject to the various assumptions, limitations and qualifications set forth therein, the consideration to be received by the shareholders of Home Capital, other than the Purchaser and its affiliates, pursuant to the Transaction is fair, from a financial point of view, to such shareholders.

Advisors

BMO Capital Markets and TD Securities are acting as Home Capital’s financial advisors and Deloitte LLP, as independent financial advisor, has provided a fairness opinion to Home Capital’s board of directors. Home Capital’s legal advisors are Torys LLP.

RBC Capital Markets is acting as financial advisor to SFC and the Purchaser and their legal advisors are Stikeman Elliott LLP.

Caution Regarding Forward Looking Statements

This press release contains forward-looking information within the meaning of applicable Canadian securities legislation, including relating to: the anticipated benefits of the Transaction; whether, and when, the Transaction will be consummated, the anticipated receipt of required regulatory approvals, including the timing thereof, and court and shareholder approval; and the timing of the declaration and payment of dividends by Home Capital. Such forward-looking information necessarily involves known and unknown risks and uncertainties and assumptions. These risks, uncertainties and assumptions include, but are not limited to: the risk that the Transaction will not be approved by Home Capital shareholders; failure to, in a timely manner, or at all, obtain the necessary court and required regulatory approvals for the Transaction and other customary risks associated with transactions of this nature. Therefore, forward-looking information should be considered carefully and undue reliance should not be placed on such information. Please note that forward-looking information in this news release reflects management’s expectations as of the date hereof, and therefore is subject to change. The Company disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law. Please refer to Home Capital’s 2022 Third Quarter Report, available on Home Capital’s website at www.homecapital.com, and on SEDAR at www.sedar.com, for Home Capital’s Caution Regarding Forward-looking Statements.

About Home Capital

Home Capital is a public company, traded on the Toronto Stock Exchange (HCG), operating through its principal subsidiary, Home Trust Company. Home Trust Company is a federally regulated trust company offering residential and non-residential mortgage lending, securitization of residential mortgage products, consumer lending and credit card services. In addition, Home Trust Company and its wholly owned subsidiary, Home Bank, offer deposits via brokers and financial planners, and through a direct-to-consumer brand, Oaken Financial. Licensed to conduct business across Canada, we have offices in Ontario, Alberta, British Columbia, Nova Scotia, and Quebec.

About Smith Financial Corporation

Smith Financial Corporation is the family holding company of Stephen Smith and has investments in a range of public and private businesses across the financial services industry. SFC has significant equity positions in Canada Guaranty Mortgage Insurance Company, Fairstone Bank of Canada, First National Financial Corporation (TSX: FN), Glass-Lewis & Co., Equitable Bank (TSX: EQB) and Peloton Capital Management and its private equity funds. Mr. Smith, one of Canada’s leading financial services entrepreneurs, is the Co-founder and Executive Chair of First National Financial Corporation as well as the Chair of Canada Guaranty, Fairstone, Glass-Lewis and Peloton. Under his leadership, SFC is an engaged participant in supporting the long-term growth and development of its strategic holdings and the independent boards and management teams at its portfolio companies. In 2015, Queen’s University announced the naming of the Stephen J. R. Smith School of Business at Queen’s University in honour of Mr. Smith and his historic $50 million donation to the school.