Goldman Sachs is to raise $7.5bn from Warren Buffett and other investors as it begins its transition from Wall Street broker to Federal Reserve-regulated bank holding company. Goldman said late Tuesday that Buffett’s Berkshire Hathaway had reached an agreement to buy $5bn of preferred stock in a private placement and to receive warrants enabling it to purchase another $5bn of common stock. Goldman also said it planned to sell $2.5bn in common stock through a public offer. The deal appears to mark a strategy shift for Buffett, 78, who has avoided investing in Wall Street firms since helping to rescue Salomon Brothers nearly 20 years ago. Under the agreement, the preferred stock will pay Berkshire a dividend of 10%. Although Goldman can buy it back at any time, it would have to pay Berkshire a 10% premium to do so. The warrants have a strike price of $115, well below Goldman’s Tuesday closing price of $125.05. Reuters meanwhile reports that Sumitomo Mitsui Financial Group, Japan’s third-largest bank, on Wednesday denied a report by Kyodo news agency  that it plans to invest several hundred billion yen in Goldman. In a separate report, the FT examines Buffett’s dealings with Wall Street, as does the WSJ.

This entry was posted by Gwen Robinson on Wednesday, September 24th, 2008 at 5:46 and is filed under Capital markets, M&A, People. Tagged with goldman sachs, warren buffett. Edit this entry.