USG Agrees To Warren Buffett Demands (USG, BRK-A, FFH)

USG Corporation (NYSE: USG) had an important vote today that essentially allows Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK-A) to get much more control of the company.

Stockholders of USG voted to approve the conversion feature of $400 million in notes.  These notes were recently issued and they came with a 10% contingent convertible feature.

These are senior notes set to mature in 2018, and are now convertible into USG common shares at the holders’ election.  In other words, at Buffett’s discretion.  These have an initial conversion price of $11.40 per share, and the notes will continue to bear an initial rate of 10% interest.

Back in November, we noted that Buffett was taking $300 million of the notes and Fairfax Financial Holdings Limited (NYSE: FFH) was taking $100 million.  This makes give Berkshire Hathaway the controlling stake.  Holders almost had to approve this if they wanted to get Buffett further on board.  If approval was not obtained before the 135th day after closing of the sale of the notes, then the rate on the notes would have come to 20% per year until after shareholder approval.

Shares got a big pop on the Buffett news in November and were up around $7.66 then.  Shares are up 2% here at $8.00 today.  The 52-week high is more than $100.00.

Jon C. Ogg
February 9, 2009