Dilution - is this calculation right?

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1

I’ve bought some shares of Home Capital before today’s vote, which may lead to additional dilution. Here’s how I calculated the dilution:

Current book value: $1.7B
Outstanding shares: 80m
Book value per share: $21.63

New investment from Berkshire Hathaway (if it’s voted in):
Cash: $246m
Shares: 24m

Post-investment:
Book value: $2b (adding new cash from BH investment)
Shares: 104m
Book value per share: $19.03

I can’t see anything wrong with this. However this article states there would be a 30% dilution that reduces book value per share to $14: https://www.fool.ca/2017/09/12/what-is-home-capital-group-in…. How do they get to that?

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2

The discussion is purely academic now since the additional investment was rejected :slight_smile: Still curious what I’m missing…

3

Hello,

The author calculated dilution of the number of shares to be outstanding vs. your method of book value.

Best regards,

Mike

4

It would be 30% of the shares outstanding. But those shares would only be diluted by 23%. And combined with the cash raised, the book value does not go down to $14. The net effect is only a 12% loss.

It seems like only the first step in that article is right.