Berkshire’s Strangest Bet? Here’s Why You Shouldn’t Copy It
The name of Buffett’s empire sent Bending Spoons shares up 41%. But Berkshire didn’t buy them on the market that day. It received a new issue at a discount and solved a problem for the company that headlines aren’t talking about.
Key points
Berkshire paid about $30.30 per Bending Spoons share, while after the announcement the market was buying them for more than $55.
The company reported revenue growth of 126%, but one line in the report shows a figure of 3%.
Berkshire didn’t buy shares on the market that day and received terms no ordinary investor would be offered.
Bank of America has a $36 price target, Mizuho $72—such a wide range for a new stock says something.
The IPO lock-up expires at the end of December, and the founders will be able to sell for the first time at prices far above the issue price.
The discount the market overlooked in its euphoria
On Wednesday, October 14, Bending Spoons $BSP, the Italian owner of Evernote, WeTransfer, and Vimeo, announced that Berkshire Hathaway $BRK-B would invest another $330 million in it. The stock soared as much as 54% in the morning, closed the day at $53.46 (+41.2%), and continued higher on Thursday to $55.77. The market value of the company, which had only gone public on July 1, topped $33 billion.
But Berkshire didn’t buy anything on the market that day. The company will issue it 10 million new shares at $33 in a private placement, about 13% below Tuesday’s close. Add to that the $600 million Berkshire invested in the July IPO at the $29 issue price, and its average purchase price works out to about $30.30 per share. That’s $930 million in total, a 4% stake, and an unrealized gain of more than 80%.
Anyone who bought after the headlines at $53 to $56 paid 75% to 85% more for the same company than Berkshire did. In other words, Berkshire bought at a discount of more than 40% to your price. And the difference isn’t just the price. Berkshire got terms an ordinary investor will never get, because it is providing the company with something it urgently needs. We’ll get to that.