Warren Buffett Investing in Sprint Would Be Unusual, but Not Unprecedented

A Berkshire Hathaway Inc. (BRK.B) investment in Sprint Corp. (S) would be an unusual step for the technophobic Oracle of Omaha, but not an unprecedented one.

The Wall Street Journal reported Friday that Sprint is holding preliminary talks with Buffett and with Liberty Broadband Corp.'s (LBRDK) John Malone to help the debt-laden company better compete with its rivals. Money-losing Sprint, which is controlled by Masayoshi Son's conglomerate SoftBank (SFTBY) , has also held merger talks with rivals including T-Mobile (TMUS) .

Although Berkshire CEO Warren Buffett is a self-proclaimed Luddite who eschews investments in companies whose businesses he doesn't understand, Berkshire nonetheless has built up big stakes in Apple Inc. (AAPL) and IBM (IBM) .

Berkshire Hathaway had $90 billion in cash at the end of the first quarter, and recently agreed to buy Oncor Electric Delivery Co. for $9 billion in cash, valuing the company at $18.1 billion.

And while Buffett is no technology expert, he's invested in the space before.  

In 2002, Buffett invested $100 million in Level 3 Communications Inc. (LVLT) convertible bonds, amid what then-CEO James Crowe called "unprecedented turmoil" in the telco industry. Berkshire sold most of its stake in the fiber optic network provider the following year at a profit; CenturyLink Inc. (CTL) agreed to pay $34 billion for Level 3 in 2016.

Berkshire also inherited a stake in AT&T Inc. (T) through a 2011 investment in DirecTV, which AT&T acquired for $48.5 billion.

The Level 3 investment bore a different Berkshire Hathaway hallmark: convertible debt and preferred stock investments in companies in need of cash. In Level 3's case, Buffett's cash bought a 10-year convertible bond yielding 9% annually.

During the financial crisis, for example, after the fall of Lehman Brothers, Berkshire propped up Goldman Sachs Group Inc. (GS) by buying $5 billion in perpetual preferred stock, paying a dividend of 10% and callable at a 10% premium, as well as warrants to purchase $5 billion in common stock with a strike price of $115. Goldman bought back the shares at a premium in 2011 and amended the terms of the warrant deal in 2013. Shortly thereafter, Buffett inked a similar $3 billion deal, with similarly favorable terms, to back General Electric Co. (GE) .

Then, in 2011, when Bank of America Corp. (BAC) was struggling, Berkshire invested $5 billion in preferred shares paying a 6% dividend. Last month, Berkshire exercised warrants in Bank of America to acquire 700 million shares at an exercise price of $7.14 per share, far below the prior day's closing price of $24.32, netting him a paper profit of about $12 billion.

A similar investment in bond powerhouse Salomon Brothers two decades earlier threatened to blow up in Buffett's face, and he even served as the troubled bank's chairman for ten months. Travelers, now part of Citigroup Inc. (C) , paid $9 billion for Salomon in 1997, netting Berkshire a profit in the end.

When Berkshire, along with privately held Mars Inc., bought Wm. Wrigley Jr. Co. for about $23 billion in April 2008, Berkshire kicked in $4.4 billion in subordinated debt and paid $2.1 billion for a discounted minority equity interest. Berkshire's Wrigley preferred stock paid dividends of 5% a year. Mars bought back Berkshire's 19.3% Wrigley stake in October.

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