Warren Buffett’s Latest Whopper of a Yield Deal
NEW YORK ( TheStreet) -- Berkshire Hathaway's
The preferred stock deal represents yet another investment that is available only to Buffett and Berkshire's shareholders that is out of reach of most investors. Berkshire's financing commitment will supplement $9.5 billion Burger King is raising from bond markets to buy Tim Hortons for 89.32 Canadian dollars ($81.47) a share, in a cash and stock deal that will give Brazilian private equity firm 3G Capital a 51% ownership stake in the combined company.
Deals like the Burger King preferreds are common for Berkshire Hathaway. During the financial crisis, Berkshire made billions of dollars loaning money to the likes of Mars, Goldman Sachs
Berkshire supplied Goldman with $5 billion in a preferred deal that paid a 10% dividend. A $3 billion deal with GE also carried a 10% dividend yield, and a $5 billion Bank of America deal carried a 6% dividend yield. Berkshire also supplied Swiss Re with CHF 3 billion ($3.28 billion) at a 10% dividend yield, and Dow Chemical, $3 billion at an 8.5% dividend yield.
While most of those preferred stakes have since been redeemed, Berkshire still benefits from stock warrants the firm negotiated when making those investments.
Berkshire owns a 2.8% stake in Goldman Sachs, which it effectively acquired for a total cost of $0. The conglomerate also has a right to buy 700 million Bank of America shares for $5 billion by 2021 , a stake that is in the green by over $6 billion .
When Goldman, GE and Bank of America came to Berkshire for emergency cash during the crisis, Buffett negotiated some of the savviest deals of his career, which also represented a turning point for those corporations as they worked to survive the worst financial panic since the Great Depression. With no major crisis currently the horizon, deals like Berkshire's preferred stake in Burger King indicate that there are still plenty of ways that Buffett can make more money and at a lower risk than even the most sophisticated investors.
Buffett appears to have found a new template in using preferred stakes to finance large takeovers. Berkshire Hathaway lent $8 billion to 3G Capital in its $23 billion takeover of Heinz in 2013. That deal carried preferred dividends of 9%, which Berkshire said would provide effective yields in the neighborhood of 12% as a result of other contingencies.