abacus deal explained
Legendary investor Warren Buffett is set to become one Goldman Sachs Group Inc.'s (NYSE: GS) largest investors without shelling out one penny.
Impressive as that is, what's even more striking is how the guru investor brokered the Goldman deal to his distinct advantage.
The savvy CEO of Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) amended terms of warrants--a type of security that gives the holder the right to purchase securities from an issuer at a certain price within a certain time frame-issued to Berkshire during the 2008 financial meltdown.
At the time, Buffett's investment in Goldman was gutsy. It was viewed as a vote of confidence in the bank as the country faced economic crisis.
The warrants originally gave Berkshire the right to buy $5 billion worth of Goldman common shares at $115 each any time before Oct. 1. Thanks to the new $1.5 billion deal inked Tuesday, Buffett's company will receive 9.2 million shares.
According to data from Bloomberg News, that makes Berkshire the ninth-largest shareholder in Goldman.
The Oracle of Omaha said in a press release, "We intend to hold a significant investment in Goldman Sachs, a firm that I did my first transaction with more than 50 years ago. I have been privileged to have known and admired Goldman's executive leadership team since my first meeting with Sidney Weinberg in 1940."
Berkshire's windfall from the investment surpasses $3 billion, making it one of Buffett's most profitable wagers in recent history.
Goldman also benefits. The investment bank avoids a flood of sell-side shares that would have been dilutive. It also gets to include the revered name of Warren Buffett to its shareholder roster.
"We are pleased that Berkshire Hathaway intends to remain a long-term investor in Goldman Sachs," Goldman's CEO Lloyd Blankfein said in a statement.