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According to the article, BH was seeking terms that had a big upside and protection against downside: > Under the proposed agreement, Berkshire Hathaway would
by morley 8y ago
According to the article, BH was seeking terms that had a big upside and protection against downside:
> Under the proposed agreement, Berkshire Hathaway would have provided a convertible loan to Uber that would have protected Buffett’s investment should Uber hit financial straits, while providing significant upside if Uber continued to grow in value, said the people, who spoke under condition of anonymity because the discussions were private.
- clairity 8y agothat's the standard way buffett ferrets out companies in distress that he can invest in with lower risk than anyone else can get (see gm bailout). if i had to guess, buffet realizes that self-driving cars are many more years away than uber has runway, and regulators are shifting to classify drivers as employees, increasing labor costs. profitability gets pushed out, creating a cash-flow problem for uber, which buffett can take advantage of.
- gtt 8y agoBut. in such scenario, how can Buffet profit from under-performing Uber?
- flyinglizard 8y agoHe’s playing a very long game.
- gowld 8y agoNot really, he's making a convertible loan so that he gets paid in the short term, skimming VC bubble money.
- deleted 8y ago[deleted]
- MrFantastic 8y agoIt's a loan so he'd probably be in the 1st tier to get paid back if Uber went bankrupt. The equity would just be a bonus. Uber is currently positioned to win when they can get self-driving cars. Drivers are Uber's biggest expense.
- clairity 8y agodebt has higher priority than equity, so buffett would get paid in most underperforming scenarios. he may even have been asking to be preferred debt, so that he gets paid before other debtholders. if the company fails, he’s still be first in line to get paid to limit losses in that case. that’s the downside protection. if he still believed in the company even as it underperformed, the debt could be converted to equity (probably at very favorable conversion prices), basically buying the equity at a discount. he’d then be in position to exert some measure of control over management. in most underperforming cases he at least gets his money back plus some interest (not bad, but not great). in some cases, he gets cheap and possibly preferred equity in uber that’s already worth more than he paid, and possibly a lot more eventually.
- valuearb 8y agoNo, he realizes that whenever self driving cars appear they won’t hurt Uber’s dominance, and that Uber’s core business is inherently very profitable and will rapidly show it under a rational CEO who will rationally allocate capital and not damage Tye brand.
- clairity 8y agosee, with that "No..." you seem to be indicating that what follows is contradictory to what i said, and that you'll support your contradictory position, but neither of those things followed. that was disappointing. i'd welcome a well-supported rebuttal. sure, he might think those things (neither of us knows) but they're totally beside the point.
- valuearb 8y agoWe know all those things because Buffett doesn’t buy turnarounds. He buys companies that he believes have sustainable competitive advantages.
- deleted 8y ago[deleted]
- hyperpallium 8y agoThat's the confusing thing about Buffett/BH: investments vs deals aren't always annotated.