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In today’s column, the astounding conclusion of the great Warren Buffett-Goldman Sachs mystery beef—a story about bankers and their fees that also reveals a cultural sea change afoot on Wall Street.
Bill
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| A couple of weeks ago, in correspondence with me, Warren Buffett wrote that he would answer my question about why he had decided to offer the odd number of $848.02 a share, in cash, for Alleghany, the big insurance company he just bought for $11.6 billion. Buffett, being Buffett, was obviously up to something. As it turned out, he didn’t want to pay Goldman Sachs’ $27 million investment-banking fee for advising Alleghany on the sale to Berkshire Hathaway.
This was quite a turn of events, given that Goldman Sachs has long been Buffett’s preferred Wall Street investment bank. He invested $5 billion in Goldman in 2008 at the height of the financial crisis and his favorite Wall Street banker, Byron Trott, was a longtime Goldman partner before he went out on his own. Plus, the purchaser of a company always ends up paying the seller’s banking, legal and accounting fees one way or the other. Believe me, no buyer likes to pay them, and would prefer not to, but convention is convention, and that’s the way it’s been, and will likely always be.
But Warren Buffett is 91 years old these days and the world’s sixth wealthiest person, with a fortune estimated at $116 billion, and so if anyone is up for tweaking the conventional norms on Wall Street, who better than the most successful investor of all time? Had he not been playing a bit of a game, Buffett would have offered $850 a share for Alleghany. But Goldman’s $27 million fee worked out to that $1.98 per share, and Buffett decided that not only was he not going to pay it, but he was also, in effect, going to force the Alleghany shareholders to pay it by reducing the consideration paid for the company.
When I wrote and asked Warren about why he did this, and what was the point he was trying to make to the wider investment banking community, he replied that he would reveal all at the Berkshire Hathaway annual meeting, held in Omaha last weekend. “Stay tuned,” he teased... |
