Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), the conglomerate controlled by billionaire investor, Warren Buffett will acquire shares of Goldman Sachs Group (NYSE:GS) worth $2 billion through the warrants it obtained during the 2008 financial crisis, according to report from Bloomberg.
Goldman Sachs urged Buffett to provide capital for the bank in an effort to strengthen market confidence when stocks declined, which was triggered by the collapse of Lehman Brothers Holdings. Buffett through Berkshire Hathaway invested $5 billion in the bank. The conglomerate obtained preferred holdings and warrants to purchase Goldman Sachs stock worth $5 billion for $115 per share.
Bloomberg calculated that Berkshire Hathaway will acquire approximately 13.1 million shares of Goldman Sachs with a market value of $2.07 billion using the average closing price of the stock over the past ten trading days including today based on the agreement.
Richard Cook, co-founder of Cook & Bynum Capital Management commented that during the financial crisis Buffett used his position as a white knight and his reputation to support the bank. He added, “Goldman Sachs is almost certainly better off for it, even though it was very expensive. And certainly Berkshire shareholders are better off.”
In 2011, Lloyd Blankfein, CEO of Goldman Sachs repurchased the preferred stake acquired by Buffett at a 10% premium. In March, Buffett agreed to exercise the warrants on a cashless transaction, and forego his opportunity to buy $5 billion worth of stock lower than the market prices. Buffett chose to receive stake in Goldman Sachs equivalent to his paper profit based on the closing prices of the stock.
Over the past six trading sessions, the stock price of Goldman Sachs declined. The stock was the worst performing stock among the 81 companies listed in the Standard & Poor’s 500 Financial Index during that period.
The revised agreement between Berkshire Hathaway and Goldman Sachs allowed the conglomerate to make profits without using more capital, and enables Buffett to focus his attention on major stockholdings such as Coca Cola Company (NYSE:KO) and Wells Fargo & Co (NYSE:WFC). Berkshire Hathaway’s top positions in its portfolio are important contributors to its success.
Buffett said his investment in Goldman Sachs boosted the reputation of Berkshire Hathaway as the “the 800-number when there’s really sort of panic in the markets.” His conglomerate earned 10 % annual dividend from its preferred shares in the bank
Over the past 52-week range, the stock price of Goldman Sachs increased from $113.84 to $170 per share. The stock closed at around $158.21 a share, down by 1.03% on Monday amid concerns regarding looming shutdown of the United States federal government.
