No. of Recommendations: 17
Sure. I would do it more often, but it's rare to find tradeable warrants for the specific stocks I'd like to be long.
I haven't bought any warrants lately, but (as in your post title) I would certainly be interested in some Warrents. (warrants issued by Warren!)
The last time Berkshire issued something like a warrant was May 22 2002, the SQUARZ product. This was a negative coupon bond with a piggyback warrant, good for five years and exercisable at a premium of 15% to the stock price close at the time. The May 21 close was $77900, so the exercise price was $89585, good till May 2007.
It was in the financial news at the time, but I don't recall much in the way of an analysis of how it turned out. In short, surprisingly well for the buyers.
This could be seen as way for Mr Buffett to raise some negative-cost float, as well as (perhaps) to dampen people's expectations for the stock as valuations were pretty stretched at the time.
The pricing was based on market close 2022-05-21 of $77900 which at the time equalled 1.975 times last known book per share and 1.926 time that day's peak-to-date known book per share. So the warrant allowed you the possibility of buying at a price which was 2.27 times the last known book per share on the date of issue. That does not seem like a great deal, then or now.
Despite that being a pretty lofty valuation multiple even then, and despite the valuation multiple falling over those five years (ending at 1.53), the warrants ended up nicely in the money. The warrants were first in the money after only 20 months, and highest price during the five years was 27% higher than the exercise price. In short, Berkshire's business did extremely well in this stretch, so a seemingly high valuation multiple for the entry price turned out fine anyway.
However, this wasn't a great deal in the usual sense that you would want from warrants, which is leverage without tying up too much capital. The warrants could not be traded without SEC registration, so the only people who could own them had to put up all the money in advance and give it to Berkshire for the duration. You would have been better off simply buying the stock on day 1 at $79800 per share.
Oddly, rather than being sold at a premium to get the negative yield, the two parts of the security were separate: the bonds paid 3% coupons, and the warrants required you to pay a 3.75%/year premium back to Berkshire for the duration of the term or they would expire. The net for Berkshire was being paid 0.75%/year to borrow money. Possibly the bonds could be separated from the warrants and sold, even if the warrants couldn't be traded, so someone could have purchased just the warrants by buying the full SQUARZ bundle then promptly selling the bonds? I'm not sure.
Incidentally, some articles seemed mystified as to why the world's first negative-coupon bond structure (an extreme novelty at the time--such innocent times) was named SQUARZ. It has always seemed obvious to me: a lot of people were trading QQQ ("cubes") in the tech bubble and bust at the time, and that was the poster child of go-go overvalued risky investments. By contrast, Berkshire is a very "square" investment, and I think Mr B wanted to emphasize the difference in an avuncularly mocking way. A square is a whole dimension less fancy than a cube.
Jim
