The Goldman Sachs Group (GS), which yesterday relinquished its investment bank status and adopted a bank-holding co. structure – announced today that it has reached an agreement to sell $5 billion of perpetual preferred stock to Warren Buffett’s Berkshire Hathaway (BRK-A) in a private offering. The perpetual preferred stock will have a dividend of 10% and is callable at any time at a 10% premium.
In addition to the $5 billion from Berkshire Hathaway, Goldman will raise at least $2.5 billion in common equity in a public offering.
“We are pleased that given our longstanding relationship, Warren Buffett, arguably the world’s most admired and successful investor, has decided to make such a significant investment in Goldman Sachs”, said Lloyd C. Blankfein, Chairman and CEO of The Goldman Sachs Group, Inc. “We view it as a strong validation of our client franchise and future prospects.”
“Goldman Sachs is an exceptional institution,” said Warren Buffett, Chairman and CEO of Berkshire Hathaway, Inc. “It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.”
According to the press release, Berkshire Hathaway will also receive warrants to purchase $5 billion of common stock with a strike price of $115 per share, which are exercisable at any time for a five year term.
Shares of Goldman rose nearly 10%, to mid $137 level in after-hours trading following the announcement.
The investment is Buffett’s second major purchase in less than a week. On Thursday, Berkshire’s MidAmerican Energy Holdings Co agreed to buy power supplier Constellation Energy Group Inc (CEG) for $4.7 billion.
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