Warren Buffett’s bet on Goldman Sachs may well pay off big time —more than $1.5 billion — provided its stock continues to recover.
In October, Buffett bought 50,000 cumulative perpetual preferred shares in Goldman for his holding company, Berkshire Hathaway. Those shares pay 10 percent a year, and the purchase agreement included warrants that gave Buffett the right to buy more than 43 million shares of Goldman common stock.
Those warrants expire in 2013. They can be exercised for an aggregate cost of $5 billion, or $115 a share. Goldman shares — which dropped to less than $50 last fall — have more than doubled and trade at $108 now.
If Goldman’s price tops the warrant exercise level Buffett could buy Goldman shares for $115 and sell them for the higher price, pocketing the difference, Midway Capital Research & Management partner Justin Fuller told MarketWatch.
"(Buffett) was criticized in October and November," Fuller notes. "But if the stock continues to rise, those warrants will be valuable for Berkshire investors, validating the deal he did with Goldman."
"It shows that long-term has a place in investing," YCMNET Advisors president Michael Yoshikami, whose company owns Berkshire stock, told Reuters.
"Frankly, the strike price was never the thesis for the investment, but was rather an add-on for a 10 percent fixed-income investment."
Buffett purchased similar warrants in General Electric that can be exercised when the stock, now selling at $10.43, reaches $22.25 a share.
© 2017 Newsmax. All rights reserved.