After the market closed today, Dow Chemical announced that it will convert the $3 billion of its 8 1/2% preferred stock held by Berkshire Hathaway on December 30 into its common stock currently yielding about 3.2%. Warren Buffett received this convertible preferred stock in 2009 in return for providing capital to Dow Chemical to assist it in its acquisition of specialty chemical company Rohm & Haas. Previously, Warren Buffett, on CNBC, had said that it was unlikely that he would hold on to the common shares of Dow upon the conversion of its preferred stock.
Berkshire’s $3 billion preferred stake will be converted into 72.6 million shares of Dow common stock at $41.32 per share. At today’s closing price of $58.35 for Dow Chemical common stock, Berkshire’s investment is valued at approximately $4.25 billion. Berkshire’s current capital gain of $1.25 billion, along with almost $2 billion it has received in dividends from Dow’s convertible preferred, represents more than a 100% return on Berkshire’s investment.
I am quoted in a Wall Street Journal article on this topic:
“Berkshire was in effect, on the corporate side, the lender of last resort in 08-09,” said David Kass, a finance professor at the University of Maryland’s Robert H. Smith School of Business and a Berkshire shareholder. “It certainly worked out well for Berkshire.”