9.24.2008

Guido Buffett

The markets are giddy this morning with Warren Buffett's "vote of confidence" investment in Goldman Sachs.

The terms of the deal?
Berkshire will buy $5 billion of Goldman perpetual preferred stock that carries a 10 percent dividend.

It also will receive warrants to buy $5 billion of common stock, or 43.5 million shares, at $115 per share, within five years, which could give it a roughly 9 percent stake in Goldman.

10% annually forever, plus deep-in-the-money warrants? That's not a "vote of confidence;" that's loan-sharking!

Buffett's warrants can most closely be compared to call options, but call options on GS only go out 2.25 years. $110 and $120 strike prices most recently traded for around $38, making Buffett's 43 million free options worth $1.65 billion -- but he has five-year warrants, not two-year, so they are actually worth far more than that.


Goldman Sachs CEO Lloyd Blankfein after "negotiating" with Buffett's men.

No comments:

Happy Super Tuesday!