Abstract

The case study discusses ace investor Warren Buffett’s Berkshire Hathaway, Inc. (Berkshire) securing a private placement deal with Bank of America Corporation (BoA) in 2011. Berkshire paid US$5 billion in cash to BoA in exchange for Cumulative Perpetual Preferred Stocks and Warrants to purchase 700 million common shares of BoA. Later, in 2017, Berkshire exercised BoA’s warrants and brought 700 million common stock of BoA. This move helped Berkshire to get US$11.50 billion capital gains in six years. Against the backdrop of this story, the case helps learners understand warrants and various related financial instruments and concepts. It helps them get to know about the significance of warrants, different types of warrants, and how stock warrants are useful to the issuer and investor, among other things. Additionally, it also helps them understand the difference between a stock warrant, employee stock option, and option.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• To understand what stock warrant and other similar financial instruments are.
• To understand the difference between stock warrant, employee stock option, and options.
• To understand the advantages and risks associated with stock warrants.

Keywords

Stock Warrant; Debt Instruments; Convertible Securities; Bank of America Corporation; Warren Buffett; Berkshire Hathaway, Inc.; Warrant; Types of Warrant; Various Risks Associated with Warrants; Significance of a Stock Warrant