Berkshire to Invest in Goldman

Oracle of Omaha buys $5bn in Goldman preferred, with warrants to invest another $5bn.

Justin Fuller, CFA 24 September, 2008 | 9:42AM
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According to a Goldman Sachs press release, Berkshire Hathaway has agreed to invest at least $5 billion in Goldman Sachs. Berkshire will invest $5 billion in preferred stock with a 10% dividend--fairly attractive terms--as well as receive warrants to invest $5 billion in the common equity of the company.

At first blush, this looks to be an interesting deal, as to this point in the financial t

urmoil, CEO Warren Buffett has avoided investing in the equity of financial companies. Given this investment, we would assume that Buffett has taken a look at Goldman's books, so this stake could be construed as an endorsement in Goldman's business and balance sheet. We'll update our take on this deal and our fair value estimate--which we were already planning to increase in the wake of Berkshire's deal to buy Constellation Energy--as we get more information.

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Justin Fuller, CFA  Justin Fuller, CFA, is an equity strategist and manager of Morningstar's Ultimate Stock-Picker's Portfolio, which layers Morningstar stock recommendations over a cross-section of great investors' stock picks to uncover enticing opportunities. Click to sign up for Justin's e-mail alerts and visit the portfolio home page.

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