LEAD: Warren E. Buffett, known as a sharp investor with an eye forundervalued securities, has agreed to pay $700 million for a 12 percent stakein Salomon Inc., the parent company of Salomon Brothers Inc., Wall Street'slargest investment banking house.
Warren E. Buffett, known as a sharp investor with an eye for undervaluedsecurities, has agreed to pay $700 million for a 12 percent stake in SalomonInc., the parent company of Salomon Brothers Inc., Wall Street's largestinvestment banking house.
Salomon, after a hastily arranged three-hour meeting of Salomon Brothers'board, announced yesterday that it had concluded a complex transaction that ridit of a restless investor while gaining a new ally, Mr. Buffett's BerkshireHathaway Inc. of Omaha, Neb.
In the two-step transaction, Salomon paid $809 million, or $38 a share, to buy back a 14 percent stakeheld by the Minerals and Resources Corporation Ltd., known as Minorco, aBermuda-based holding company controlled by the Anglo American Corporation of South Africa.Those 21 million shares had represented the largest single holding in Salomon.
John H. Gutfreund, Salomon's chairman and chief executive, said he hadheld discussions with Mr. Buffett on several previous occasions about BerkshireHathaway's making an investment in Salomon. A Deal With a New Twist
The deal marks a new twist to the recent trend on Wall Street in which anumber of major firms have actively sought foreign investors, particularlyJapanese institutions, to buy a large stake. Goldman, Sachs & Company andShearson Lehman Brothers Inc. both brought in Japanese investors -a major bankfor Goldman and a huge insurer for Shearson - to bolster their capital andinternational connections.
In this instance, Salomon, which also owns the Philipp Brotherscommodities trading concern, is shedding a foreign investor for a domestic one.The deal also comes at a critical moment for Salomon Brothers.
The firm has been engaged in a review of all its operations that isexpected to result in some important, and possibly wrenching, shifts in its mixof businesses. Payment Exceeds Stock Value
Salomon's payment for the stake far exceeded its market value, based onthe stock's New York Stock Exchange closing price on Friday of $32 a share. The stock price of Salomon, likethat of most other publicly traded securities firms, has been depressed thisyear by concerns over growing competition and shrinking margins on Wall Street.The current price is well below the stock's high of $44.75.
Minorco, which chanced upon its large holding in Salomon rather thanhaving planned it, has been cutting its stake for several years. Minorco hadbeen a major investor in Philipp Brothers before Phibro acquired SalomonBrothers in 1981, and thus became the largest shareholder in the combinedcompany after the merger.
Minorco officials had indicated to Mr. Gutfreund as early as six months agothat they might be interested in selling their stake, sources close to thetalks said. But Minorco did not actually approach the firm with a decision tosell until Sept. 19. Then, last week, Minorco disclosed publicly that it wasconsidering selling its 14 percent stake in Salomon. Minorco had reduced itsstake from 29 percent, to 14 percent several years ago.
Henry R. Slack, Minorco's president, said the company was selling itsstake now because of a policy decision that it would focus its investments innatural resources companies. Anglo American, which controls Minorco, recentlymade a big investment in the Newmont Mining Corporation through another companyit controls, Consolidated Gold Fields P.L.C.
In the second step of the transaction, Salomon said it would sell 700,000shares of a new issue of preferred stock to Berkshire Hathaway and a companycontrolled by it for $1,000 ashare.
The preferred stock will pay a 9 percent annual dividend and isconvertible into Salomon shares at $38 ashare after three years. The new stock represents 12 percent of Salomon's totalvoting rights. Of the total, 100,000 of the preferred shares will be acquiredby the Wesco Financial Corporation, a subsidiary of Berkshire Hathaway, whichowns savings and loans and a steel service center.
Since Salomon will end up holding the remaining 2 percent Minorco stakenot being acquired by Berkshire Hathaway, the firm's capital will be reduced bythe value of that interest, approximately $100 million.
One interesting aspect of Mr. Buffett's investment in Salomon Brothers isthat it rests largely on Mr. Gutfreund's remaining the firm's chairman. Theagreement stipulates that Mr. Buffett will vote his shares with the board onlyso long as Mr. Gutfreund, or somebody else who he approves of, runs thesecurities house.
In effect, the agreement gives Mr. Buffett enormous influence over whosits in the chairman's seat at the country's largest investment banking firm.
Under Mr. Buffett, Berkshire Hathaway has been an opportunistic investorin a variety of industries, principally through an insurance company it owns.It also owns a newspaper in Buffalo,and companies involved in publishing, home cleaning products, and candymanufacturing. Berkshire Will Not Raise Stake
Berkshire Hathaway has agreed not to increase its stake in Salomon to morethan 20 percent for seven years, and it has granted Salomon the right of firstrefusal on any sales of Salomon securities, the companies said.
After completion of the deal, which must be approved by both boards, Mr.Slack and Ruben F. Richards, a director of the company, will resign fromSalomon's board, the company said. Replacing them will be Mr. Buffett, chairmanof Berkshire Hathaway, and Charles T. Munger, vice chairman.
One of the most respected investors in the country, Mr. Buffet made hisname buying undervalued assets. Opening his first investment partnership in1956, he parlayed $100,000 to more than $100 million by 1969.
Operating out of a small office in Omaha, Mr. Buffet took his $25 millionfrom the partnership and in 1965 assumed control of Berkshire Hathaway,building the former New England textile concern into a rich and diversifiedcompany.
发表于 2008-9-24 19:39:19
