XL shares jump 28% on Warren Buffett takeover rumours

Just the hint of Warren Buffett buying, and company values jump. XL jumped 28% in a day on Friday as the latest company in his sights. As the crisis deepens, Buffett is on a veritable buying spree. The sales are on, and it’s Christmas every day.

XL Capital (with which we share the name but not the billion dollar losses), is the latest to be linked to the Buffett name. Goldman Sachs have been appointed by XL to seek suitable investors. Coincidentally (or not), it was Buffett who came to Goldman Sach’s rescue with $5 billion when they were against the ropes three months ago. With Sach’s shares having dropped since then, has Buffett lost out? No! As an Accumulator he builds in every scenario into his investments. In Goldman Sach’s case, he gets a 10% dividend on his preferred shares on his purchase price regardless of the day-to-day share price.

Even if he does a deal that isn’t a deal, he still makes money… Three months ago Buffett also agreed to invest $1 billion in Constellation Energy as it was about to collapse. Last week, Constellation rejected Buffett’s approach and took a $4.5 billion bid from Electricite de France instead. The ‘Golden Pill’ that Buffett included in his original $1 billion if the deal fell through has resulted in Buffett receiving $600m in cash, keeping a 9.9% stake worth $530m and getting a $1 billion note earning 14% through to the end of 2009. That means the deal fell through and Buffett still walks away after three months with his money back and over $1 billion in profit…

For Accumulators, even when they lose they win.

Banks trump the Donald

Donald Trump is battling the banks over a $40 million personal guarantee while his casinos head for a third bankruptcy. Déjà vu? I’m often asked “If Donald Trump is a Deal Maker (his Wealth Dynamics Profile) why is he so focused on his brand? In my mini-bio of Trump in “Your Life, Your Legacy”, I wrote that Deal Makers keep a low profile, Stars keep a high profile and Trump’s rising brand would eventually be his downfall.

Trump has made far more money from his property deals than from his brand. In the 1980s as his wealth grew with the markets, he took his eye off the ball, and ended up $3 billion in debt. In the last five years the same has happened. Last week Deutsche Bank sued Trump for $40 million he personally guaranteed as part of a $334 million unpaid debt for his new tower in Chicago. In response, Trump has pointed to a ‘force majeure’ clause in his agreement. This is a clause that covers unforeseeable events like riots or floods or ‘any other event not within the reasonable control of the borrower”. Donald’s defence: “Would you consider the biggest depression we have had in this country since 1928 to be such an event? I would.”

Trump has counter-sued Deutsche Bank for $3 billion for ‘damaging his reputation’. The chances of either his defence or counter-suit standing are slim, and Deutshe Bank is now using his 'reputation' against him. On Friday the bank responded with a summary judgement for the $40 million, quoting from Trump’s book last year “Think Big and Kick Ass in Business and in Life”. In it he said he loved “to crush the other side and take the benefits”, mocking the banks that had lost money on loans made to him and saying “I figured it was the bank’s problem, not mine.”

The winning formula of a Star is the losing formula of a Deal Maker. As creditors grow from his highly-leveraged deals (and the list is growing), how long before his deals - and brand - unravel?