Too Big to Fail [263]
On Monday night Byron Trott, wondering why there had been no news from New York, called Winkelried from his office in Chicago.
“It’s been way too quiet since the weekend. What’s going on?” he asked apprehensively.
Winkelried told him that they were going to begin another round of calling investors on Tuesday with a new proposal to sell shares in the firm. With the market still seesawing, he said, he didn’t expect they’d be able to raise money from a single large source; given the conditions, it would have to come in smaller amounts from dozens of institutional investors.
“Hold on,” Trott interrupted him. “You guys, you have to slow down here.”
Trott, who was the firm’s closest—and perhaps only—conduit to Warren Buffett, suggested that they consider approaching him one more time. Since the previous Thursday, Trott had gone to Buffett with a number of different proposals to invest in Goldman, but the ever-circumspect financier had declined them all. Blankfein had encouraged Trott to propose a standard convertible preferred deal, in which Buffett would receive preferred shares with a modest interest rate, which could be converted into common shares at about a 10 percent premium to Goldman’s current stock price. But, as Trott had correctly predicted, there wouldn’t be enough upside to interest the Oracle. “In a market like this there’s no reason I can take the risk,” Buffett told Trott.
On Tuesday morning, after consulting with Blankfein and the rest of the senior Goldman team, Trott called Buffett again with a new proposal. Buffett’s grandchildren were visiting Omaha, and as he was planning to take them to the local Dairy Queen (a chain owned by Berkshire), the conversation lasted no more than twenty minutes. Trott knew the only way Buffett would be willing to make an investment would be if he were offered an extraordinarily generous deal, which he now presented: Goldman would sell Buffett $5 billion worth of stock in the form of preferred shares that paid a 10 percent dividend. This meant that Goldman would be paying $500 million annually in exchange for the investment, which would also allow Buffett to convert his investment into Goldman shares at the price of $115 a share, about 8 percent lower than their current price. With those terms Goldman would be paying an even greater amount than what Buffett had asked of Dick Fuld back in the spring, a sum that Fuld had seemingly rejected.
Relying on his gut, as always, Buffett quickly agreed to the outlines of the deal. Trott called Winkelried, reaching him just as he emerged from the Grand Central terminal on his way to the United Nations, where President Bush was scheduled to address the Sixty-third General Assembly, to tell him the good news.
“I think Warren will do this!” Trott said excitedly.
“Okay, stay where you are,” Winkelried told him. Trying to find a quiet spot on the congested, noisy sidewalks outside Grand Central, Winkelried called the office to set up a conference call with Goldman’s brain trust—David Viniar, Gary Cohn, David Solomon, and Blankfein, who had flown down to Washington for the day for meetings with lawmakers.
Minutes later the group was assembled, and they began to discuss the Buffett deal. Just as important as the infusion of cash, they agreed, was the confidence that a Buffett investment would inspire in the market. Indeed, Winkelried said, the firm would be able to raise additional money from other investors on the back of Buffett’s investment.
“Well, why wouldn’t we do it?” Viniar wondered.
“We’re done,” Solomon said.
Trott immediately set up a call for Blankfein to speak directly with Buffett, and after the two briefly reviewed the transaction, Buffett suggested that Goldman get the papers in order and send them to him, so