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Home Capital to be acquired by Smith Financial in $1.7 billion deal

Christian Fernsby |
Home Capital Group announced that it has entered into a definitive agreement to be acquired by a wholly-owned subsidiary of Smith Financial Corporation ("SFC").

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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 subject to increase.

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.

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.


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