Here's a news release on the IPO:
Goldman, limited partners negotiate payout for IPO
By Jack Reerink
NEW YORK (Reuters) - When Goldman Sachs & Co. Inc. goes public later this year, the investment bank's former partners will get a payout that is close to what they bargained for, sources said Thursday.
"The settlement is regarded to be within 10-15 percent of whatever the theoretical idea of what is fair by certainly a very large majority of the limited partners," said one limited partner, who declined to be identified. "That ends the issue. There are not any further discussions."
Goldman Sachs' 110 limited partners -- those who no longer work for the firm, but still own about a fifth of its $6.6 billion capital -- Wednesday agreed to a deal outlining how they can convert their stakes when the firm goes public in October.
A combination of Goldman's rivals getting bigger and a strong stock market swayed the firm last month to discard its 129-year old partnership and go public to boost its capital base. The firm's current partners will meet Aug. 10 to discuss the final proposal, a source close to the firm said.
Goldman's limited partners can choose from three options to convert their capital, on which they now earn slightly more than 10 percent in annual interest: They can cash out and receive a 25 percent premium over their actual stake, convert their holdings to stock at a 55 percent premium, or leave the capital with the firm and receive 12 percent annual interest for eight years, sources said.
"Because we have the right to mix and match, I suppose everybody will mix and match," the limited partner said. "Only some will take one thing or the other. The younger may take all stock, the elder all debt."
A Goldman spokesman would not comment on the deal, which was first reported by U.S. newspapers Thursday morning.
Goldman is arranging a different deal with its big institutional investors, Sumitomo Bank and Royal Hawaiian, which hold a combined $1.4 billion equity stake in the firm, a source close to the firm said.
"For (the limited partners), it's a little bit of a waste of time because they already agreed when they became limited to (forfeit) their claim on this stuff," the limited partner said. "We don't have any legal rights to this stuff. It's really about moral obligations."
All the same, a group representing the limited partners over the last months negotiated with Goldman's management about how their capital would be converted after the firm goes public at the end of October. The parties did not put any hard numbers on the table in the series of meetings, but rather felt each other out, the limited partner said.
"Everybody who works (on Wall Street) thinks every day is distinguished by it being an opportunity for new negotiations," the limited partner said. "Everything is negotiated, (even) whether you get your tuna fish sandwich a certain way is negotiated."
A few former partners felt they unfairly missed out on big payday -- a public offering is expected to value Goldman at $25-30 billion -- because they helped expand the firm.
"Some people believe that insufficient attention was paid to the contributions of the prior guys," the limited partner said. "And 'most all of us prior guys probably have an inflated view of our contribution."
The deal, however, gives limited partners much more flexibility than Goldman's 200 general partners will have, the limited partner said. The latter group will have its equity stake converted to stock, but with longer lock-up provisions than those in effect for limited partners, he added.
Goldman has set aside a "significant amount" of stock for junior partners, who have built up little equity, and managing directors to entice them to stay after the firm goes public, the limited partner said. The firm's partners have voted down proposals to go public in the past partly because they worried that key personnel would leave.
"They induced the younger folks to go along by providing a set aside of a large amount of the stock to be awarded to these people," the limited partner said.
The expected payments to the firm's key personnel, rank- and-file and the big institutional investors, will diminish the take of former and current partners, some of which still are expected to reap hundreds of million of dollars.
"This reduces the total amount of premium to a much lesser amount, maybe half or so," the limited partner said. But the premium -- the difference between Goldman's current $6.6 billion book value and its expected $25-30 billion valuation after an offering -- is still big enough to satisfy most.
"This time we have an absolutely volcanic stock market in which financial service companies are trading (at) four times book value," the limited partner said. "The size of the premium becomes so large there is plenty of juice to spread around."
((--New York Newsdesk (212) 859-1725, fax (212) 859-1717--)) ^REUTERS@ Reut16:35 07-30-98
(30 Jul 1998 16:34 EDT)
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