Goldman / Buffett: nifty arithmetic Just having Goldman Sachs and Warren Buffett in the headline usually makes for a big story. But news that the investment bank and investor modified the settlement details of Mr Buffett's 2008 lifeline for Goldman is not much more than a technical development. The evidence? The desultory reaction in Goldman's stock: up 0.3 per cent on below average volume. Mr Buffett's $5bn convertible preferred investment, which includes warrants to buy Goldman common stock at $115 a share, will now be settled in Goldman shares rather than cash. At Goldman's current price of $146 a share, the warrants are worth about $1.4bn. The change simply allows Mr Buffett to have that value directly handed to him in Goldman shares. Under the original terms, Mr Buffett would have paid the exercise price ($5bn in all) to Goldman and received his 43.5m shares. Those shares would be added to the Goldman share count but, of course, Goldman could mitigate the dilution by using the exercise price proceeds to buy back the shares at the then market price, reducing the dilution to only 9.2m shares. The new agreement accomplishes this all in one step. The share transfer reduces Mr Buffett's stake from what could have been 43.5m shares to only 9.2m shares and also does not force Goldman to go into the market (or to Mr Buffett) to buy back shares. The nifty arithmetic of using warrant exercise proceeds to reduce dilution actually has its own name. Accountants refer to it as the "treasury stock method." If the revised settlement provides anything noteworthy is the chance to see how smart both Goldman and Mr Buffett are. Goldman redeemed the preferred stock portion in 2011 so they could avoid the dividend payment but Mr Buffett received a 10 per cent premium on that redemption. If there had not been a redemption Mr Buffett's overall return would have been about 15 per cent.