Buffet’s Investment in Goldman – Nothing To See Here

Posted on November 10th, 2008 in Daily Stock Market / Economic News - The Real Story, Mr Mortgage's Personal Opinions/Research

Bloomberg put out a great story on the Lehman saga over the weekend. We already knew most of it, but the color and detail makes for a fun read.

One thing I found particularly interesting is how Buffet was ready to do a deal with Lehman during its crisis period. If he would have done so, he would have ended up with a big, fat ZERO.

Perhaps this is why Goldman is having such a rough time lately – a Buffet deal does not automatically mean that everything is great.  Hearing this should make Buffet chaser investors proceed with caution. Not even Buffet has lived through a global crisis like the one that faces us today and everyone seems to be making the wrong move lately. –Best, Mr Mortgage

Source: Bloomberg – Fuld Solicited Buffett Offer CEO Could Refuse as Lehman Fizzled


This time around Fuld also reached out to Omaha billionaire Buffett, the man who had ridden to the rescue of Salomon Inc. in 1987, according to two people with knowledge of the approach. He asked investment banking chief Hugh “Skip” McGee, 49, to call David L. Sokol, chairman of Berkshire Hathaway-owned MidAmerican Energy Holdings Co., and see if Buffett might be interested in a stake in Lehman.

Spurning Buffett

The answer was yes, Sokol told McGee. So Fuld called the 78-year-old Buffett. Berkshire Hathaway would buy preferred shares that would pay a dividend of 9 percent and could be converted to common at the then-market price of $40, the people said. That was costlier than what other investors demanded, Fuld was told by associates, and he spurned the offer. A few days later, on April 1, Lehman sold $4 billion of convertible preferred stock to public investors with a 7.25 percent interest rate and a 32 percent conversion premium.

That meant those buying the convertibles were willing to pay one-third more than the market price for Lehman’s shares if and when they wanted to convert. Buffett was willing to pay only the going price at the time, which would have meant more dilution for existing shareholders. A spokeswoman for Buffett declined to comment.

Fuld had saved some money, yet he rebuffed a Buffett stake, considered to be corporate America’s Good Housekeeping seal of approval. Although that might have helped Lehman in the short run, it wouldn’t have solved the firm’s fundamental problem: Fuld needed to sell the entire mortgage-related portfolio at whatever price he could get and raise enough capital to cover the losses incurred in such a sale”

One Response to “Buffet’s Investment in Goldman – Nothing To See Here”

  1. Warren gets much better terms than any of us could and Berkshire has an indefinite life span.

    The rest of us have to deal with the next five years.

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