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Financial crisis deal makes Buffett a major Goldman shareholder

March 26, 2013|By E. Scott Reckard
  • Berkshire Hathaway Chief Executive Warren Buffett, shown last year, says the federal government's across-the-board-cuts approach to deficit reduction is better than no deficit reduction at all.
Berkshire Hathaway Chief Executive Warren Buffett, shown last year, says… (Paul Sakuma / Associated…)

Warren Buffett, the ultimate buy-and-hold investor, is grabbing a big chunk of stock in Goldman Sachs Group Inc. — without having to buy it.

The deal would make Buffett’s Omaha-based investment firm, Berkshire Hathaway Inc., one of Goldman’s biggest shareholders. Based on Goldman’s current stock price, Buffett would wind up owning about 9 million shares, or 2%, of the giant investment bank when the deal closes in October.

Buffett, 82, whose business savvy earned him the nickname “Oracle of Omaha,” is being rewarded for an investment that amounted to an endorsement of Goldman at the height of the financial crisis, after its Wall Street rival Lehman Bros. had collapsed.

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As part of that deal in October 2008, Buffett received warrants entitling Berkshire Hathaway to buy nearly 43.5 million common shares of Goldman Sachs for $115 a share at any time for five years.

Had Buffett bought the stock at that price and sold it Tuesday morning at the going rate of about $146 a share, he would have generated a profit of more than $1.3 billion.

Instead, under an agreement announced Tuesday, the companies will do the same math in the week before the warrants expire in October. Goldman will then provide Buffett with shares equivalent in value to the profit he could have made by buying the 43.5-million shares and then selling them.

For Goldman Sachs, the deal is less dilutive for existing shareholders at a time when the Federal Reserve has criticized the firm's capital plans. And for Buffett, the deal will provide what he loves best – ownership in a company he regards as a long-term winner.

He already had made about $1.7 billion on another part of his 2008 deal with Goldman — an investment in preferred stock that the Wall Street firm repurchased because it was paying Buffett such a hefty dividend — 10% annually.

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Buffett was 10 years old when his father, during a trip to New York in 1940, took him to meet then-Goldman Chairman Sydney Weinberg. He said in a statement that he had been “privileged to have known and admired Goldman’s executive leadership team” ever since.   

"We intend to hold a significant investment in Goldman Sachs, a firm that I did my first transaction with more than 50 years ago," Buffett said.

"We are pleased that Berkshire Hathaway intends to remain a long-term investor in Goldman Sachs," said Goldman’s chairman and CEO, Lloyd C. Blankfein.

In afternoon trading in New York, Goldman shares were down 5 cents at $146.06. Berkshire Hathaway stock rose by $1,609 a share, or 1%, to $155,393.

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