Benzinga - by Bibhu Pattnaik, Benzinga Staff Writer.
During the 2008 financial crisis, Warren Buffett stepped in to support Dow Chemical through a significant investment via his firm, Berkshire Hathaway Inc (NYSE: BRK). This move not only enabled a crucial acquisition for Dow but also proved to be a profitable venture for Berkshire Hathaway.
What Happened: In 2008, Dow was on a mission to acquire manufacturer Rohm and Haas for a whopping $18.8 billion, a strategy to transition from bulk chemicals to specialty chemicals, according to Insider.
To facilitate this acquisition, Dow sought financial backing from Berkshire Hathaway, which agreed to inject $3 billion in return for preferred shares yielding an 8.5% annual dividend.
The financial backing became a lifeline for Dow, especially when a joint venture with Kuwait's Petrochemical Industries Company, which was supposed to fund a large part of the acquisition, did not materialize.
Despite the economic chaos and a decline in Dow's stock value, Buffett reportedly stood firm on his commitment, investing $3 billion in assets that were worth roughly $1.8 billion at the time.
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According to Insider, Buffett noted, "We showed up with $3 billion for something that was worth about $1.8 billion maybe at the time," highlighting the trustworthiness that Berkshire had in the deal.
During the crisis, Buffett's assistance wasn't limited to Dow; he also reportedly entered into agreements with firms such as Goldman Sachs (NYSE: GS) and General Electric (NYSE: GE), allocating a total of $21.1 billion in various deals.
The strategy required Buffett to relinquish shares in other entities and forgo potential opportunities to preserve Berkshire's liquidity.
By 2016, Dow transitioned the preferred shares into common shares, thereby eliminating the obligation of substantial dividend payments.
Berkshire Hathaway, not keen on retaining Dow's common shares, promptly sold them. This, along with the dividends accrued over the years, led to an estimated pre-tax profit of $3 billion for Berkshire, effectively doubling the initial investment, according to Insider.
Andrew Liveris, Dow's CEO at the time, recognized Buffett's vital role during the crisis, applauding the impressive returns derived from the investment.
"He's done very well with that investment, as he has done at Goldman and elsewhere," he told Reuters. "He was incredibly valuable through the crisis."
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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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