Warren Buffett's company will likely become one of the biggest shareholders in Goldman Sachs Group Inc. later this year, and Berkshire Hathaway Inc. won't even have to part with any cash to do so.
Warren Buffett’s company will likely become one of the biggest shareholders in Goldman Sachs Group Inc. later this year, and Berkshire Hathaway Inc. won’t even have to part with any cash to do so.
Berkshire and Goldman said Tuesday they had renegotiated an agreement that gave Berkshire the right to buy 43.5 million shares of the investment bank for $115 per share. Now the 2008 deal will be settled with stock this fall.
Buffett and Goldman Chairman and CEO Lloyd Blankfein both characterized this new deal as an endorsement of the investment bank – much like they did when Buffett invested $5 billion in Goldman during the financial crisis.
“We intend to hold a significant investment in Goldman Sachs, a firm that I did my first transaction with more than 50 years ago,” Buffett said.
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Berkshire is generally known as a passive shareholder that doesn’t interfere with the companies in which it invests. And Buffett’s soft spot for bank investments is clear because Berkshire already holds large stakes in Wells Fargo & Co., U.S. Bancorp, Bank of America Corp. and M&T Bank.
Goldman spokesman Andrew Williams said Tuesday that at current share prices the new warrant agreement would put Berkshire in the lower end of the top 10 of Goldman’s biggest shareholders, but the number of shares Berkshire will ultimately receive will be determined by Goldman’s stock price this fall.
Goldman shares rose 43 cents to close at $146.54 Tuesday, more than 27 percent higher than the exercise price.
Investor Andy Kilpatrick, who wrote “Of Permanent Value: The Story of Warren Buffett,” said the new terms appear beneficial to both companies. Berkshire saves cash at a time when it’s preparing to acquire half of H.J. Heinz Co. in a $23.3 billion deal, and Goldman gets to enjoy Buffett’s backing while issuing fewer shares.
“It saves Berkshire cash and hassle,” Kilpatrick said. “And it extends the Berkshire halo over Goldman.”
Blankfein said he is pleased that Berkshire plans to remain a long-term investor. Goldman already paid Berkshire $5.65 billion in 2011 to repurchase the preferred shares Buffett’s company bought in 2008 during the financial crisis.
Berkshire also received the right to buy the Goldman common shares in the same deal. Originally, Berkshire could buy Goldman stock for $115 per share until this Oct. 1.
Now instead of Berkshire paying $5 billion cash for all 43.5 million shares, Goldman will compensate Berkshire with stock for the difference between its stock price and the exercise price near the original deadline this Oct. 1. At Tuesday’s prices, that would give Berkshire about 9 million Goldman shares, or a stake of almost 2 percent.
Besides investments, Berkshire Hathaway owns more than 80 businesses, including BNSF railroad, Geico insurance, General Reinsurance, MidAmerican Energy, Helzberg Diamonds and Acme Brick. The conglomerate is based in Omaha, Neb.
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Berkshire Hathaway Inc.: www.berkshirehathaway.com
Goldman Sachs Group Inc.: http://www.goldmansachs.com