Warren Buffet, the CEO of Berkshire Hathaway, has shown his disdain for bankers of Wall Street with an oddball share pricing of the latest takeover of Alleghany Corp. involving a multibillion-dollar deal.
Bloomberg News reports a price of $848.02 of every share of Alleghany Corp. that stockholders will get from Berkshire Hathaway Inc. after the takeover. This strange pricing results from Buffet’s unwillingness to accept the banking fee set by Goldman Sachs Group Inc., advising the insurer.
Buffet’s unwillingness to pay Goldman Sachs
Berkshire Hathaway was willing to pay $850 per share of Alleghany, with Buffet making it clear to the insurer that he did not want to pay the fees for Goldman Sachs, according to a person who has information on the matter but did not want to be identified as the discussion is still private. So, any banking advisory fees will be paid out of the share holders’ money proceeds. This resulted in the new share purchase price of $848.02 revealed in the regulatory filings that mentioned roughly $27 million towards fees for Goldman Sachs that called for attention towards Buffet’s stand.
Buffet, 91, had always shown his disdain for investment bankers whom he called costly “money-shufflers” who insist loudly to be fed in his annual letter in 2015. In 1996, Buffet, a director and shareholder of Gillette Co, had unsuccessfully tried to slash the fees of the bankers of the battery company Duracell International whom Gillette was acquiring.
Representatives of Alleghany and Goldman refused to comment on the matter, whereas Buffet’s assistant did not respond to the message sent to him seeking his comment.
As per data compiled by Bloomberg Intelligence, the Alleghany transaction is the largest undertaken by Berkshire since 2016. Usually, deal prices see plenty of negotiations between buyers and sellers, but they typically smoothen out before the transaction is closed. Full announcements about the pricing do not contain clunky numbers as both parties agree on a plan on how the advisors’ fees have to be paid.
Buffet, who is nicknamed the Oracle of Omaha for his great investments, is famous for his business aphorisms that are also witty. He rarely used the services of an investment bank for his acquisition deals. Instead, He relied on Charlie Munger, the Vice Chairman of Berkshire’s earlier law firm Munger, Tolles, and Olson, to act as advisors.
One of those rare bankers who won the respect of Buffet grudgingly was Byron Trott. As a former banker with Goldman Sachs, he helped Buffet close a deal to buy Mclane, a food distribution business, from Walmart.
In a letter released by Buffet in 2004, he said that Trott understands Berkshire better than any other bankers on Wall Street, and he earns his fees.
The Buffet was a long-time investor in Goldman Sachs after acquiring warrants and stocks in the bank at the height of the financial crisis. Berkshire exited from all investments from the bank in 2020.
