When pressed on why he buys into certain businesses, Warren Buffett likes to say he buys only businesses he understands.
Certainly the $5 billion his Berkshire Hathaway Inc plans to plow into Goldman Sachs preferred stock immediately doesn’t represent an outright ownership stake. So perhaps the second-richest American won’t need to understand as much of what the so-called rocket scientists at Goldman do – which is a whole lot less, now that the bank is going commercial bank and its strategies built over decades are in tatters.
Another of Buffett’s truisms is that when the markets turn sour the problems are exposed, “you always find out who’s been swimming naked when the tide goes out,” he told CNBC television in August. “We found out that Wall Street has been kind of a nudist beach.”
He gave himself time to ogle before deciding where to plant his towel. Perhaps even more sexy than Goldman’s business is the stunning premium he’s picking up.
For its $5 billion, Berkshire gets preferred stock that carries a 10 percent dividend. It also gets 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. That’s a paper profit on the warrants alone of $437 million, based on Goldman’s closing stock price on Tuesday.
Other deals of the day:
* Sumitomo Mitsui Financial Group, Japan’s No. 3 bank, plans to invest in Goldman Sachs Group, Japanese media said, in what would be the third big Japanese investment this week on Wall Street.
* French utility EDF launched a 12.5 billion pound ($23.14 billion) agreed bid for nuclear operator British Energy, in a revamped offer to take control of Britain’s nuclear power industry.
* Yahoo Inc‘s new board approved a new round of discussions with Time Warner over the future of its AOL unit, the Financial Times said, citing a person familiar with Yahoo’s thinking.
* Japan’s third-largest drugmaker Daiichi Sankyo said its open offer to buy up to 20 percent of India’s generic drugmaker Ranbaxy was oversubscribed.
* An Indian government agency is selling a stake worth roughly $1.2 billion in private sector lender Axis Bank , sources familiar with the situation said.