Berkshire(NYSE:BRK.A) pays zilch-stays at the zenith of Berkshire – GS
Northern, WI 03/27/2013 (noesisstar) – Goldman Sachs Group, Inc (NYSE:GS) (Current: $146.54, Up by 0.29%) and Berkshire Hathaway Inc (NYSE:BRK.A) ($155,707.64. Up by 1.25%) have reached an agreement about setting warrants that had been granted when recession was at its peak in 2008. Via this agreement, Berkshire Hathaway is all set to become the largest shareholder in Goldman Sachs. Until Oct 1 the former had the right to buy 43.4 common shares of the latter company. Now the company will get Goldman Sachs stock which will be commensurate with the difference between the 10 day closing price before Oct 1 and its exercising price. This will be multiplied by 43.5 million.
To a certain degree, this new agreement will reduce Berkshire Hathaway Inc (NYSE:BRK.A)’s risk. Under the previous circumstances, the only way the company could make a profit would have been to exercise the warrants that had been set up, incur a cost of close to $5 billion which would amount to around 9 percent of the outstanding stock that the bank has. By assets, Goldman Sachs Group, Inc (NYSE:GS) is the fifth largest bank in the U.S and this agreement now confirms Berkshire as a shareholder in the company and automatically reduces any losses for other investors. The Birmingham, Alabama-based Cook & Bynum Capital Management LLC’s Richard Cook said that if the 43 million had to be bought and then sold to gain a profit the resultant transactional cost would be very heavy.
His firm which oversees the Berkshire Hathaway Inc (NYSE:BRK.A) shares said that this move had definitely avoided a dilution. Berkshire Hathaway Inc (NYSE:BRK.A)’ warren Buffet is an icon of the investing word and Goldman had approached him to help them with shoring up its capital gains and reaffirming its position in the market especially since the company stocks had come crashing in 2008. The added benefit of the deal has been that Goldman Sachs has not managed to garner $5.75 billion within a period of two days from the stock offering. In 2008, Buffet had invested $5 billion in preferred stock with carried a 10 percent dividend and had received five-year warrants for it.