Buffett has once again shown us the reason why he is one of the greatest investors in the history of the world.
Berkshire Hathaway, Warren Buffett’s company, is on the verge of receiving $2 billion from the Goldman Sachs warrants that they bought during the worst point of the financial crisis.
Back in 2008, Goldman Sachs asked the investing wizard to invest a total of $5 billion in the company to shore up confidence and boost capital. This happened after company shares began to drop once Lehman Brothers collapsed. At that point, the stock market went into a free fall.
Warren Buffett’s investment showed up at a time when the US federal government was doing everything in their power to stabilize the ailing economy and financial system. This included pumping money directly into the nation’s banking system. When Berkshire Hathaway invested $5 billion into Goldman Sachs, it showed the country that confidence in the banking system was firm.
“We intend to hold a significant investment in Goldman Sachs, a firm that I did my first transaction with more than 50 years ago,” said Buffett during that time.
And it’s no surprise that Warren Buffett’s investment paid off.
Here’s the deal:
Berkshire Hathaway invested a total of $5 billion for a preferred holding. It gave them the ability to buy $5 billion worth of stock at $115 a share.
Here’s the reward:
Back in 2011, Goldman Sachs redeemed the preferred shares at a 10% premium to the Berkshire Hathaway price.
Revised deal in March:
Warren Buffett agreed to exercise the warrants through a cashless transaction. He would receive an amount of stock equivalent to its paper profit. In the revised deal, Berkshire Hathaway received a total of 13.2 million shares, and they plan to use the average share price of September’s 10 final trading days to redeem the warrants.
Buffett and Berkshire Hathaway are going to earn approximately $2 billion by redeeming the 13.2 million shares. As of last Friday, the current estimated Goldman Sachs share price is $160 per share.
That’s a phenomenal deal for Warren Buffett and the investors of Berkshire Hathaway.