Warren Buffett’s Berkshire Hathaway is poised to become one of Goldman Sachs’ largest shareholders without paying anything after the companies agreed on a plan to settle warrants granted at the height of the 2008 financial crisis.
Under a deal announced by the companies Tuesday, Buffett’s firm will get Goldman Sachs stock equal to the difference between the average closing price during the 10 trading days before October 1st and the exercise price, multiplied by 43.5m.
The new deal reduces some of the risk for Berkshire, which would have had to spend about $5bn to exercise the warrants and then sell the shares - about 9% of the bank’s outstanding stock - to cement a profit. For Goldman Sachs, the plan seals Berkshire’s participation as a shareholder in the company and reduces the dilution for other investors.
'To buy the 43m and sell them to reap the profit would have substantial transactional cost', said Richard Cook, co-founder of Cook & Bynum Capital Management LLC in Birmingham, Alabama, which oversees Berkshire shares. 'Goldman has avoided the dilution'.
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