After a sharp rally in the ivestment bank’s shares in recent months, Goldman Sachs Group Inc. held by Warren Buffett’s Berkshire Hathaway Inc. are close to becoming a lot more valuable.
Berkshire invested $5 billion in Goldman last year attaining 50,000 cumulative perpetual preferred shares in the investment bank paying 10% per year. Berkshire also has the right to buy 43.5 million shares of Goldman common stock til 2013 and can be exercised for an aggregate cost of $5 billion, or $115 per share.
Although the credit crisis has sunk into deeper waters, Goldman has doubled since November of last year climbing up to $111.93. As soon as the Goldman stock passes the $115 per share mark, Berkshire’s warrants will be “in the money”.
This is a very good sign for Warren Buffett because as soon as the stock price reaches any amount past $115, he can buy Goldman shares for $115 and pocket the difference. If for example shares reach $160 then Buffett can pocket $45 as profit.
Apart from Goldman, Berkshire has similar warrants in General Electric Co when Buffett invested in the industrial conglomerate last October. The GE warrants can be exercised for an aggregate cost of $3 billion, or $22.25 per share.
GE shares closed at $10.43 on Monday so Buffett is still deeply out of the money on this one.
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