It was widely reported that Warren Buffett had got a sweet deal with Goldman Sachs. Today Berkshire Hathaway (BrK-A)(BRK-B) reported that it owns more than 43 million shares of Goldman common stocks (GS, Financial), which are held in the form of warrants exercisable by the Reporting Persons within 60 days.
These warrants are part of deal Buffett got in last year. The terms of the deal looked very positive for Berkshire; Warren Buffett agreed to invest $5 billion in Goldman in exchange for perpetual preferred shares with a dividend yield of 10%. It would also be expensive for Goldman to redeem these shares, as they must buy them back at a 10% premium. Buffett also had the option to invest an additional $5 billion in common stock at a strike price of $115. The reported 43 million shares seem be to the stocks Warren Buffett can buy.
Within two months of the announcement of the deal, Goldman Sachs declined to $50s. It has since climbed to $94, still lower than the price Warren Buffett pays.
On Oct. 16, 2008, Warren Buffett wrote his open-ed for the New York Times with the title of Buy American. I Am. and he was putting where his mouth was, as he always does. He also stroke deals with GE, Harley-Davison (HOG), USG, and he continues to buy Burlington Northern (BNI) in open market. Within past year Berkshire’s cash position has reduced from around $40 billion to about $10 billion. The market continued its decline since. Does this prove again that Buffett became the richest person in the world no by timing the market?
Buffett has been avoiding investment bankers in the past. As the industry collapsed, Buffett must see bargains. But these businesses are very complex. They do not seem to be the “simple businesses” Buffett always looks for. Or they are simple to Buffett, not us?
For sure, Goldman is valuated at historical lows from price/book point of view. But which bank is not these days?
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(10-year valuation chart is a feature for Premium Members. Take a 7-day Free Trial)
These warrants are part of deal Buffett got in last year. The terms of the deal looked very positive for Berkshire; Warren Buffett agreed to invest $5 billion in Goldman in exchange for perpetual preferred shares with a dividend yield of 10%. It would also be expensive for Goldman to redeem these shares, as they must buy them back at a 10% premium. Buffett also had the option to invest an additional $5 billion in common stock at a strike price of $115. The reported 43 million shares seem be to the stocks Warren Buffett can buy.
Within two months of the announcement of the deal, Goldman Sachs declined to $50s. It has since climbed to $94, still lower than the price Warren Buffett pays.
On Oct. 16, 2008, Warren Buffett wrote his open-ed for the New York Times with the title of Buy American. I Am. and he was putting where his mouth was, as he always does. He also stroke deals with GE, Harley-Davison (HOG), USG, and he continues to buy Burlington Northern (BNI) in open market. Within past year Berkshire’s cash position has reduced from around $40 billion to about $10 billion. The market continued its decline since. Does this prove again that Buffett became the richest person in the world no by timing the market?
Buffett has been avoiding investment bankers in the past. As the industry collapsed, Buffett must see bargains. But these businesses are very complex. They do not seem to be the “simple businesses” Buffett always looks for. Or they are simple to Buffett, not us?
For sure, Goldman is valuated at historical lows from price/book point of view. But which bank is not these days?
Click on the chart to toggle the reference ratios:
(10-year valuation chart is a feature for Premium Members. Take a 7-day Free Trial)
