Finance History | One New York Plaza, 1 October 1987 — US$700 Million Blended Income with Equity Upside

On 1 October 1987, Berkshire Hathaway subsidiaries completed a US$700 million investment in 700,000 newly issued shares of Salomon Inc. Series A cumulative convertible preferred stock. Each preferred share cost US$1,000 in 1987 dollars and carried a 9 percent annual dividend, so the issue's face amount implied US$63 million of annual dividends in 1987 dollars while the shares remained outstanding. The security could be converted after three years into Salomon common stock at US$38 per common share in 1987 dollars, giving Berkshire equity upside if the investment bank increased in value. If Berkshire did not convert, a mandatory sinking fund was scheduled to redeem the preferred stock in five equal annual installments beginning in 1995, returning principal over time rather than leaving a perpetual claim. The preferred shares also voted with the common stock and represented approximately 12 percent of Salomon's voting power immediately after issuance. A seven-year standstill generally prevented Berkshire and its controlled entities from acquiring securities that would push their voting interest above 20 percent, limiting the investment's path toward control. The package therefore combined features that ordinarily belong to different instruments: contractual cash income, seniority over common equity, a scheduled route to principal repayment, voting influence and a conversion option. That structure reduced some downside compared with buying common shares alone, but it did not make Salomon's business predictable or remove governance risk, because trading, underwriting and financial-market conduct still determined the institution's long-term value. Berkshire's own 1987 account classified the commitment primarily as an intermediate-term fixed-income investment with an additional conversion possibility, illustrating how security design can reshape a capital allocation without changing the underlying operating risks. One New York Plaza anchors the transaction to Salomon Brothers' Wall Street headquarters, where a US$700 million commitment in 1987 dollars joined bond-like income to a contingent claim on the firm's future equity value. Photo: Jim.henderson, CC0, via Wikimedia Commons.