Calculate loss to Goldman’s shareholdersIn September 2008, in the midst of the credit crisis on Wall
Street, Goldman Sachs invited Warren Buffett, the legendary fundamental
investor, to contribute much-needed equity capital to the firm. Buffett
seemingly got a very good deal.For a $5 billion cash infusion, he received perpetual
preferred equity shares carrying a 10 percent dividend (redeemable by Goldman
Sachs) plus warrants to buy $43.5 million common shares at $115 per share( for
a total of another $5 billion). The $115 conversion price was set at the
current share price, a three year low for Goldman.
If Buffett exercises the warrants when Goldman Sachs’s per
share price is $159, what is the loss to Goldman’s shareholders?