Berkshire Hathaway has agreed to invest $330 million in a private placement of 10 million shares at $33 each, which would lift its stake in the Italian serial acquirer to about 4% once the deal closes. It follows a $600 million investment at the company's July listing.
Berkshire Hathaway agreed to buy more of Bending Spoons below the market price. Other investors then paid far above it.
A securities filing disclosed Wednesday shows Berkshire has agreed to invest $330 million in the Italy-based owner of Vimeo and AOL through a private placement of 10 million shares at $33.00 each. That price was about 13% below Tuesday's close of about $37.86. The placement would lift Berkshire's stake to about 4% once it closes, which is expected in the fourth quarter, subject to customary conditions.
Bending Spoons shares rose more than 40% to near $54 by early afternoon, more than 60% above the price Berkshire agreed to pay.
A second commitment
The placement follows a $600 million investment Berkshire made in July, when Bending Spoons listed on the Nasdaq. Including the new placement, its total commitment would be about $930 million.
Bending Spoons is a serial acquirer of software and internet businesses, a model that resembles a holding company more than a typical technology startup.
Why buy at a discount and rally anyway
Private placements are usually priced below market because the buyer commits a large block of capital at once and the shares may carry resale restrictions. Discounts are common.
The rally likely reflects what Berkshire's name carries. Its investment decisions are closely followed, and a second commitment about three and a half months after the listing signals that its view of the company did not change after the listing. For a serial acquirer, the fresh capital also expands its capacity for deals without returning to public markets.
At Wednesday's early-afternoon price, the shares Berkshire agreed to buy would be worth about $540 million, roughly $210 million more than it is paying, before any lock-up or resale considerations.
Market implications
The bullish case is that Berkshire's backing lowers the company's cost of capital and lends credibility to a model built on acquisitions, giving it more room to buy businesses on favorable terms.
The cautious case is that a 40%-plus intraday gain on an endorsement, rather than on new financial results, puts the stock's value heavily on sentiment. New investors are paying about 60% more than Berkshire agreed to pay for the same shares.
What to watch
The full terms in the subscription agreement, including any lock-up, the closing of the placement, Bending Spoons' next acquisition, and whether the shares hold their gains once the initial reaction fades.