Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) will hold its annual meeting six days from now, and billionaire superinvestor Warren Buffett has a long history of choosing to invest in solid companies with great long-term prospects.
Buffett has such a strong reputation that on several occasions, his investment has been instrumental in helping companies rebound from their difficulties. As shareholders prepare for the annual gathering in Omaha, let's look at six of the companies that Warren Buffett has helped save.
1. Goldman Sachs (NYSE:GS)
The financial crisis of 2008 was a pivotal moment for Goldman Sachs, which teetered on the brink of a financial-system collapse.
When Goldman needed capital, Berkshire Hathaway provided it, with Buffett investing $5 billion in September 2008 in return for preferred shares paying a 10% yield. Berkshire also got warrants allowing it to buy $5 billion in Goldman common stock for $115 per share. At a time when investors were fleeing financial stocks, Buffett's investment made others see Goldman Sachs and other financial firms as potential value plays.
By the end of 2009, Goldman stock had recovered much of its lost ground, and in early 2011, Berkshire got its $5 billion repaid plus an extra $500 million premium for the preferred shares. The warrants were even more lucrative, as Berkshire settled its warrants with Goldman last year to take shares worth about $2 billion.
2. General Electric (NYSE:GE)
Like Goldman Sachs, General Electric found itself vulnerable when the market melted down six years ago. In the run-up to the financial crisis, General Electric had seen huge growth in its finance division. That left General Electric dangerously exposed to the credit crunch that hit the financial markets in late 2008.
As part of a broader capital-raising strategy that included a $12 billion offering of common stock to investors, General Electric turned to Berkshire Hathaway in October 2008, giving Buffett the chance to invest $3 billion in General Electric in return for preferred stock and warrants on GE. As with Goldman, General Electric paid Berkshire a 10% dividend on the preferred shares, and Berkshire got the right to buy $3 billion in GE stock for $22.25 per share at any time over the ensuing five years.
The deal gave investors confidence in General Electric's plan to reduce its financial exposure, a strategy that has worked out well in the years since the crisis. GE's recovery took longer than Goldman's to pan out, but in the end, General Electric repaid the $3 billion plus a 10% premium for the preferred shares in 2011, and Berkshire ended up taking $260 million in General Electric shares last year in lieu of exercising its warrants.
3. Bank of America (NYSE:BAC)
Even after the financial crisis, some banks struggled, and Bank of America was one of the hardest-hit.
In late 2011, B of A was struggling to raise capital, and so Buffett once again stepped up with a deal to invest $5 billion in the bank, again getting preferred stock and warrants. The preferred paid only 6% this time, but the exercise price of $7.14 per share again gave Berkshire a chance to profit mightily from a B of A recovery, with a 10-year expiration instead of the five-year periods from previous deals.
Since then, Bank of America has recovered, its share price has more than doubled, and Berkshire is still receiving dividends on its preferred shares. Moreover, with a recent change to accommodate B of A's capital requirements, Berkshire could guarantee another five years of dividends to go with its profitable warrant position.
In one of Buffett's lesser-known deals, Berkshire participated in a private placement of convertible senior notes of wallboard manufacturer USG in late 2008. The notes came with a 10% interest rate, the same amount that Buffett negotiated with Goldman and GE.
Given the difficulties in the housing and construction markets during the financial crisis, USG looked like it might collapse, with its shares falling to just $4 from over $100 at the height of the housing boom. Berkshire's financing helped USG survive the worst of the crisis, and at the beginning of this year, Berkshire exchanged about 80% of the $300 million in convertible notes it held for 21.39 million common shares of USG. Berkshire converted the rest of its notes earlier this month, giving it about a 30% stake in USG.
In February 2009, the well-known motorcycle manufacturer needed money in order to support its finance arm, which was laboring under the stress of the credit crunch. Buffett again acted as lender of last resort, as Berkshire invested about $300 million in exchange for senior unsecured notes paying 15% interest.
The high interest rate reflected the fact that unlike other deals, Berkshire didn't take an equity kicker in the arrangement. The money allowed Harley to keep offering financing to its customers, which was crucial to help it survive the recession. Earlier this week, Harley announced that it had repaid the Berkshire loan back in February, marking its successful comeback. In fact, Harley said that it had tried to repay the loan early, but Buffett held firm and earned the full amount of interest for Berkshire shareholders.
6. Omaha World-Herald
In late 2011, Buffett announced that Berkshire would buy newspaper company Omaha World-Herald. With the newspaper industry struggling to deal with online competition and high expenses, Omaha World-Herald faced extensive long-term capital needs, yet local stakeholders wanted to ensure that the local flavor of the newspaper survived.
Buffett has been an advocate of newspapers, with his longtime investment in the publisher of the Washington Post, and the $150 million that Berkshire paid made it possible for older shareholders to have the liquidity they needed even as younger employees couldn't buy enough stock to pick up the slack.
Warren Buffett has a storied history of helping companies survive tough times. Whenever Buffett sees an opportunity to use his reputation to find a profitable opportunity for Berkshire, shareholders can expect him to jump on it -- to their benefit.
Follow along as we countdown the days until Berkshire Hathaway's annual shareholder meeting in Omaha, Nebraska on May 3. A handful of Fools will be attending the event and live chatting with other Fools around the globe! Click HERE to set a reminder for yourself about the live chat!
The previous articles in our "12 Days of Berkshire" series:
12 Reasons Warren Buffett Is an Incredible Investor and How You Can Learn From Him