Berkshire to invest at least $5 billion in Goldman
Buffett may be lured by stabilized business model of Wall Street firm
Look at the terms highlighted below. Buffett gets in cheaper than the current market value and at a premium. My guess is that he will help GS pump up the common stock price so help them raise capital.
By Alistair Barr & Jonathan Burton, MarketWatch
Last update: 6:26 p.m. EDT Sept. 23, 2008
SAN FRANCISCO (MarketWatch) -- Berkshire Hathaway agreed late Tuesday to invest at least $5 billion in Goldman Sachs Group, with billionaire investor Warren Buffett backing a Wall Street firm that's begun transforming itself into a more-stable banking business.
Berkshire, the insurance-focused conglomerate run by Buffett, will invest at least $5 billion in Goldman by buying $5 billion of perpetual preferred stock issued by the investment bank. The securities pay a dividend of 10% and is callable anytime at a 10% premium.
Berkshire also gets ,warrants to purchase $5 billion of Goldman common stock with a strike price of $115 a share. Buffett can exercise these at anytime over five years, Goldman said in a statement.
"Buffett did this after Goldman converted to a bank holding company," said Pat Dorsey, director of equity research at Morningstar.
This means the Federal Reserve will be Goldman's new regulator, so Buffett "has people looking over their shoulder," he added.
"Buffett is saying that, with less leverage and more stable sources of funding, this is an institution worth investing in," according to Dorsey. "From Buffett's perspective you have a world-class firm in a less-competitive landscape, with a hopefully less-risky business model."
NOTE ----->>>> Goldman also said that it's raising at least $2.5 billion by selling common stock in a public offering.
Shares of Goldman Sachs shares jumped 7% to $134 in after-hours trading Tuesday.
Buffett's investment is "a strong validation of our client franchise and future prospects," said Lloyd Blankfein, chief executive of Goldman, in a statement. "This investment will further bolster our strong capitalization and liquidity position."
"Goldman Sachs is an exceptional institution," Buffett commented. "It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance." End of Story
Alistair Barr is a reporter for MarketWatch in San Francisco.
Jonathan Burton is an assistant personal finance editor for MarketWatch, based in San Francisco.
