Goldman Sachs Partners ‘Overwhelmingly’ Approve Initial Stock Sale
Goldman Sachs Group’s 190 partners voted Monday to sell stock in the firm to the public, potentially more than tripling the value of their stakes in what could be the biggest first-time stock sale ever by a Wall Street financial company.
Goldman’s partners, who manage the 129-year-old firm’s investment banking, trading and research businesses, voted “overwhelmingly” in favor of an initial public offering, Goldman said in a statement. The vote follows one in mid-June in which the partners expressed “overwhelming support” for going public, an idea they had rejected six times in the last 20 years.
By going public in an IPO expected to raise more than $3 billion later this year, Goldman could use stock to finance acquisitions that would boost its weaker lines of business, and to continue to expand its investment banking activities. While Goldman is the top worldwide merger advisor so far in 1998 and a leading underwriter of stock and bond sales, including many of the premier IPOs from California firms this year, it still has less than half the assets under management of leading U.S. brokerage Merrill Lynch & Co.
Because Goldman is a private partnership, its partners for years have put much of their earnings back into the firm in lieu of big annual bonuses. Those profits are eventually taken out at retirement.
“Frankly, the main reason for an IPO here is that the owners feel too much of their personal wealth is tied up in the company,” said Avandihar Subrahmanyam, a professor of finance at UCLA’s Anderson School. “An IPO will allow them to take some of that wealth out. This deal is going to be very successful. People trust this name, and Goldman’s had a long history of performance.”
The vote came after senior partners Jon Corzine and Henry Paulson reviewed details of the plan. Once the deal is completed, the company is expected to sell about 10% of its shares and have a market value of about $30 billion, comparable to Merrill Lynch, which is valued by investors at $31 billion.
At Monday’s meeting, partners heard estimates on the potential value of their shares, worth from $25 million for more junior employees to more than $100 million for senior partners, based on a multiple of about 3.5 times the firm’s equity capital. That is slightly below earlier expectations, but stock prices of financial companies have dropped in recent weeks. Merrill shares have dropped 17% from their July 13 high, while rival Morgan Stanley, Dean Witter, Discover & Co. shares have dropped 13% since July 17.
The largest IPO by a financial company was from Instituto Nazionale delle Assicurazioni, Italy’s government-run insurance company, which sold $2.8 billion in stock in 1994, according to Securities Data Co. of Newark, N.J.
The decision to sell stock overcame the objections of some employees, including Philip Murphy, head of Goldman Sachs Asia, who argued that the firm’s partnership structure had served it well for decades and distinguished Goldman from its peers.
But at least one analyst said the plan could increase teamwork at the firm.
“In my view, their culture is one of teamwork. Since they are potentially distributing equity to more people in the firm, this IPO reinforces their culture of teamwork,” said David Vernon, a vice president with A.T. Kearney, an executive search firm. “It’s an enhancement.”
Goldman, with 11,500 employees, expects to file its IPO plans with the Securities and Exchange Commission by the end of September.
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Bloomberg News was used in compiling this report.
