Goldman Sachs Group (GS) announced Tuesday that it has amended its warrant agreement with Berkshire Hathaway (BRK.A and BRK.B) from a cash settlement to a stock deal.
In September 2008, during the financial crisis, Berkshire invested $5 billion in Goldman, in exchange for shares of perpetual preferred stock and warrants to buy $5 billion of Goldman common stock -- 43.5 millionshares -- at $115 per share through Oct. 1, 2013. Goldman redeemed the preferred stock for $5.65 billion in 2011 and the companies are now amending the second part of the deal.
Instead of Berkshire paying cash for all 43.5 million shares, Goldman will compensate Berkshire with stock for the difference between its stock price this fall and the exercise price.
The deal will likely make Berkshire one of Goldman's top 10 biggest shareholders. Goldman shares are currently 27% higher than the exercise price.
"We intend to hold a significant investment in Goldman Sachs, a firm that I did my first transaction with more than 50 years ago," said Warren Buffett, Chairman and Chief Executive Officer of Berkshire Hathaway.
"We are pleased that Berkshire Hathaway intends to remain a long-term investor in Goldman Sachs," said Lloyd Blankfein, Goldman's chairman and CEO.
The warrant had provided Berkshire Hathaway the right to purchase 43,478,260 shares of Goldman stock at an exercise price of $115. On Tuesday, Goldman said, "Under the amended agreement, Goldman Sachs will deliver to Berkshire Hathaway 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)."
Contributing: Associated Press