Friday, August 26, 2011

A great analysis of the BRK - BAC deal

Aswath Damodaran - NYU expert on valuation - provides a really great analysis of the Berkshire Hathaway - Bank of America deal that I blogged on yesterday.   Aswath values the options at around $3 billion which means that Buffet got the preferred stock for only $2 billion.  At that price the yield is around 15%!   My own back of the envelope calculations came in around $8-9 billion for the deal - so basically, BAC shareholders just handed Buffet a nice gift of around $3 to $4 billion dollars.

Aswath concludes that this probably wasn't a good deal for BAC and I'm inclined to agree with his analysis - paying about $4 billion for the Buffet seal of approval seems pretty high.