Goldman, Berkshire amend warrant agreement
26 Mar 2013
Goldman Sachs Group (GS) announced today it was amending its warrant agreement with Berkshire Hathaway from a cash settlement to a stock deal.
The financial crisis in September 2008 saw Berkshire invest $5 billion in Goldman, in exchange for shares of perpetual preferred stock and warrants to buy $5 billion of Goldman common stock at $115 per share through 1 October 2013.
GS redeemed the preferred stock for $5.65 billion in 2011 and the companies are now amending the second part of the deal.
Warren Buffet, chairman and chief executive officer of Berkshire Hathaway said the company intended to hold a significant investment in Goldman Sachs, a firm that he did his first transaction with over 50 years ago.
Lloyd Blankfein, Goldman's chairman and CEO said the company was pleased that Berkshire Hathaway intended to remain a long-term investor in Goldman Sachs.
With the warrant, Berkshire Hathaway had been granted the right to purchase 43,478,260 shares of Goldman stock at an exercise price of $115. Goldman said today under the amended agreement, Goldman Sachs would deliver to Berkshire Hathaway ''the number of shares of common stock equal in value to the difference between the average closing price over the 10 trading days preceding 1 October 2013 and the exercise price of $115 multiplied by the number of shares of common stock covered by the warrant (43,478,260).''
Meanwhile, Buffett was in line to getting 2 per cent of Goldman thanks to the soaring value of the warrants he held in the investment bank.
The warrants Buffett got in the deal would net him some $1.4 billion today if he were to cash them in for Goldman shares.
Under the amended pact, Berkshire would get stock, putting him in line today to get some 9.3 million shares if the deal was to be transacted at yesterday's closing price. This would equal around 1.9 per cent of Goldman's shares outstanding when Buffett's new shares were added in.
According to FactSet a position close to 2 per cent would see Buffett in line to be the No 9 holder of Goldman.
The shares have meanwhile been rallying in premarket trading, putting the Oracle of Omaha in place to net even more.
At the time of his September 2008 investment, Goldman rose above $125, but then promptly retreated to $50 that fall.
