Updated Friday, August 1, 2014 as of 6:33 PM ET
Portfolio - Investment Insights
Buffett Poised to Get $2 Billion Goldman Stake With Warrants
by: Noah Buhayar and Michael J. Moore
Monday, September 30, 2013

Bloomberg -- Warren Buffett’s Berkshire Hathaway Inc. is poised to get more than $2 billion in Goldman Sachs Group Inc. stock through warrants acquired during the depths of the 2008 financial crisis.

Berkshire may receive about 13.2 million shares in New York-based Goldman Sachs, according to an agreement that uses the average closing price on the 10 trading days through today to calculate Buffett’s stake. The number of shares is an estimate based on the nine trading days through Sept. 27 and may change based on fluctuations in the stock price today. The bank closed at $159.85 last week.

Goldman Sachs turned to Omaha, Nebraska-based Berkshire in 2008 to bolster capital and shore up market confidence when shares plunged following the collapse of Lehman Brothers Holdings Inc. Buffett, Berkshire’s chairman and chief executive officer, invested $5 billion for a preferred holding and got warrants to buy $5 billion of stock for $115 a share.

“Buffett used his position as a white knight and his reputation to prop up an institution at a time of crisis,” said Richard Cook, co-founder of Cook & Bynum Capital Management LLC. “Goldman Sachs is almost certainly better off for it, even though it was very expensive. And certainly Berkshire shareholders are better off.”

Goldman Sachs CEO Lloyd C. Blankfein, 59, redeemed the preferred stake in 2011 at a 10 percent premium. Buffett agreed in March to exercise the warrants through a cashless transaction, in which he passed on a chance to spend $5 billion for stock at below-market prices. He instead gets an amount of stock equivalent to his paper profit, based on closing prices.

The revised agreement reduced the dilution for Goldman Sachs holders and let Buffett profit without deploying more funds. It also allowed Berkshire to focus on its top holdings, including Wells Fargo & Co. and Coca-Cola Co.

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