In depths of the financial crisis, Goldman Sachs (GS) — contrary to what they’d like you to believe today — was in pretty dire straits.
The bank went cap in hand to Warren Buffett, and offered him�a very favorable deal�in exchange for an investment from Berkshire Hathaway (BRKA)�(BRKB).
How favorable the deal was became clear this morning, when the two sides announced that Berkshire will convert the warrants it received in 2008 into common stock later this year:
The warrants had provided Berkshire the right to purchase 43.5 million Goldman Sachs common shares until Oct. 1. Under revised terms, Goldman Sachs will give Berkshire an amount of stock equal to the difference between the average closing price over the 10 trading days preceding Oct. 1 and the exercise price of $115, multiplied by 43.5 million.
As things stand today, that amounts to Buffett receiving, in effect, just over 9 million Goldman shares for free. Bloomberg calculates that into a $1.35 billion profit for Buffett, based on yesterday’s closing price for Goldman’s stock of $146.11.
That’s not all he’s gotten from the bank:
Buffett�s 2008 investment in Goldman Sachs also included preferred stock that paid him $500 million a year in dividends and was redeemed in 2011.
All this in exchange for a $5 billion investment. As Dow Jones’ reporter Erik Holm writes:
Today’s announcement puts a nice bow on one of the more successful investments Buffett made in that turbulent time without requiring him to spend more of his company’s cash.
Nice work if you can get it.
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