Buffett to Invest $5 Billion in Goldman

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Buffett is buying $3 billion of General Electric Co. preferred shares. The perpetual preferred stock carries a dividend of 10 percent, similar to the terms Buffett struck with Goldman Sachs.

Berkshire also expects to receive warrants to buy $3 billion worth of GE common shares for $22.25 each, exercisable at any time for a five-year term
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The deal is structured in two parts, giving Berkshire a stream of cash and potential ownership of roughly 10% of Goldman. Berkshire will spend $5 billion on "perpetual" preferred shares of Goldman. These are not convertible into equity but pay a fat 10% dividend.


Berkshire also will get warrants granting it the right to buy $5 billion of Goldman common stock at $115 a share, which is 8% below the 4 p.m. closing share price Tuesday of $125.05. At Goldman's roughly $50 billion market value, based on that closing price, exercising those warrants would give Berkshire about a 10% stake in Goldman.

Goldman also will go to the public to raise at least a further $2.5 billion by selling common shares. Once it does, Berkshire's stake -- if it has exercised the warrants -- would fall to about 7%. Goldman will have the right to repurchase the preferred shares at any time for a 10% premium.
( asr: if Buffet exercises warrents into perferred shared at $115 after that time Glodman can repurchase any time back them with 10% premium of market price of that day
asr note2: see smart Glodman , after Buffet $5B , they sell common shares , so public has confidence to buy common shares . With out Buffet $5B public may not be ready to buy Goldman common shares)

Goldman's plan to raise capital comes just a day after Morgan Stanley announced plans to raise about $8 billion by selling up to a 20% stake to Mitsubishi UFJ Financial Group, a big Japanese commercial bank.