Warren Buffett's Dow investment could face losing $8/second bonus streak
In 2009, Buffett's Berkshire Hathaway had lent Dow Chemical $3 billion as loan to aid their purchase of Rohm and Haas, a chemical manufacturer. This translated into preferred stock of 3 million shares to Berkshire, that started paying them an annual dividend of 8.5%, technically putting gains at $8 per second. The investments face a pact which could result in Buffett losing the bonus.
Berkshire Hathaway is a massive American conglomerate that started out as a textile firm, but soon failed in the market. After the company ventured out into making gains on huge investments and opening diversified products such as insurance, to restaurant, to toys, it now owns multiple subsidiaries. The company, led by Warren Buffett, clocked a whopping $211 billion in revenues last year.
Dow Chemicals is an international chemical company that provides a varied array of products ranging from plastics and agricultural products to consumer goods. The company, listed on the NYSE, was founded in 1897, and is currently based out of Michigan. Dow garnered nearly $49 billion in revenues last year, and has subsidiaries such as Union Carbide, and Rohm and Haas under its belt.
Berkshire's financing deal with Dow Chemicals stated that the annual dividend of 8.5% will be paid out on the preferred stock only if the shares trade below the $53.72 mark. Once stock prices exceed $53.72 across 20 trading days or more, in a 30-day duration, Dow will then convert the shares into common stock. The common stock would pay only 3.4% annual regular dividend.
While Dow looks at converting these stocks, Buffett has much to lose from the massive gains, amounting to over $1.5 billion, he has made from the financing. Market sources have speculated that someone is shorting the stocks, that is, selling securities at the market price and buying them back when the price declines, clocking profits. This would prevent any exaggerated increase to Dow's shares.
Buffett's Berkshire Hathaway plunged into making large investments post the 2008 recession period. In just three years after the recession, Berkshire had neared investments across a myriad of companies that totalled to $25 billion.