Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is getting an updated warrants agreement from one of its longterm holdings, Goldman Sachs Group, Inc. (NYSE:GS).
The terms of the agreement will make Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) one among the largest shareholders in Goldman Sachs’ stock. The amendment in the agreement between both parties offers Berkshire a net share settlement instead of a cash settlement.
The warrant held by Berkshire allowed the Omaha based company to buy 43.47 million shares of Goldman Sachs Group, Inc. (NYSE:GS) till October 1, 2013 at the price of $115. As per the previous agreement, the bank would have to compensate Warren Buffett’s empire in the form of cash for the difference between the current stock price of Goldman Sachs at that time and the exercise price ($115).
Now the changes to the agreement will give Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) the number of shares of common stock equal in value to the difference between the average closing price over the 10 trading days preceding October 1, 2013 and the exercise price of $115 multiplied by the number of shares of common stock covered by the warrant (43,478,260).
To put it simply, if Goldman Sachs Group, Inc. (NYSE:GS)’s average closing price between September 17 to September 30 is $150, then Berkshire will become the shareholder of an additional $1.52 billion worth of G0ldman’s stock ((150-115) x 43478260).
Goldman Sachs currently trades around $146, approximately up 27 percent from the exercise price of $115. If indeed Goldman Sachs is trading at $150 when this deal implements itself in October, Berkshire’s will become entitled to more than 10 million shares of GS common stock.
Both parties are welcoming the amended deal; Warren Buffett said that Goldman Sachs Group, Inc. (NYSE:GS) is one of the first companies he invested in 50 years ago and his firm intends to build a significant stake in the bank. In the press release, Goldman Sachs expressed its pleasure at having Berkshire as a long term investor in the bank.