's long-term horizon has enabled him to continue to benefit from
deals made five years ago during the financial crisis. GuruFocus
Real Time Picks shows that this week his company, Berkshire
), became 2.8% owner of Goldman Sachs (
) by converting warrants he purchased when the investment bank was
verging on meltdown in 2008.
At the time, Buffett became savior to a number of faltering
institutions by infusing both cash and his impeccable reputation
through similar deals such as with Bank of America (
), GE (
) and Dow Chemical (
Buffett's cash commitment toward his crisis-era deals totaled $14.5
billion, he said in his 2008 letter. He had to sell stock in his
holdings in Johnson & Johnson (
), Procter & Gamble (
) and ConocoPhillips (
) to generate the capital to make them.
"We very much like these commitments, which carry high current
yields that, in themselves, make the investments more than
satisfactory. But in each of these three purchases, we also
acquired a substantial equity participation as a bonus," Buffett
In the original Goldman Sachs deal, Buffett invested $5 billion for
the bank's preferred stock and received $5 billion in common stock,
strike price $115 per share. He had five years to exercise the
warrants, which carried a 10% dividend.
Then, in March 2013, the two parties amended the deal from a cash
settlement to a net share settlement. In other words, instead of
giving Berkshire Hathaway the right to purchase 43,478,260 shares
at an exercise price of $115 before Oct. 1, 2013, Goldman would
instead give him the number of shares equal to the value to the
difference between the average closing price of the 10 trading days
leading up to Oct. 1, 2013 and the exercise price multiplied by the
43,478,260 shares the warrants granted.
This stake was smaller than it would have been in the initial deal,
but did not require Buffett to spend any money to exercise the
warrants. As disclosed on Oct. 8, the stake given in the amended
deal totaled about 13.06 million shares, making Berkshire the
six-largest external shareholder in the company.
In 2011, Goldman redeemed another 50,000 shares of preferred stock
with a 10% cumulative dividend at a price of $110,000 per share
that Berkshire purchased concurrently with the warrants. Goldman
paid Buffett $1.64 billion in one-time preferred dividends at the
time of redemption.
Goldman Sachs shares trade around $154.69 on Wednesday, up
approximately 21% since Buffett made the deal with the company on
Oct. 1, 2008.
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