Wednesday, November 28, 2001

may sell stock
in Goldman

The charitable trust owns shares
worth about $491 million

By David Wells
Bloomberg News

WASHINGTON >> Kamehameha Schools may sell its 5.45 million shares in Goldman Sachs Group Inc., the securities firm said yesterday.

If all shares were offered, the sale would be worth $473 million to Kamehameha. It was revealed in a Securities and Exchange Commission filing that also said a unit of Japan's Sumitomo Banking Corp. may sell 8.67 million shares worth $780 million. Unloading the stocks would be the last of the investments Kamehameha and SMBC Capital Markets Inc. made when the securities firm was Wall Street's largest private partnership.

Both said they have no immediate plans to sell their shares.

Sumitomo Mitsui, the world's second-biggest bank, has sold about $2 billion in Goldman shares since 1999, in part to raise money to cope with slumping business at home, analysts have said.

Kamehameha invested $500 million in Goldman, half in 1992 and half in 1994. The charity already has reaped proceeds of $2.05 billion through four prior stock sales, President Wallace Chin said.

"It's been a very good investment for the entire organization," said Chin. "We'll be able to further our charitable mission, which is to educate native Hawaiians." The proceeds will be invested in stocks, he said.

Chin said Goldman asked the charity to participate in the filing at the request of Sumitomo Mitsui. Robert Rabbino, general counsel for SMBC Capital Markets in New York, said he was "not aware of that history."

Rabbino declined to comment on what Sumitomo Mitsui might do with the proceeds.

"The beauty of the shelf registration is that should we decide to sell in the future, we can do so on short notice," he said. "We have no intention to sell now."

Chin said that under an agreement with Goldman, Kamehameha would have attained the right to sell the shares April 1. The new filing allows the charity to sell before then, he said.

Sumitomo Mitsui, which first bought a stake in Goldman in 1986, sold 9 million shares in Goldman's initial stock sale, as did Kamehameha, and has sold shares in three other blocks since then.

Shares of Goldman, the No. 3 U.S. securities firm by capital, fell $3.19, or 3.5 percent, today to $86.81. The shares have fallen 18.8 percent this year, including reinvested dividends, while the Standard & Poor's 500 index has lost 14.5 percent.

Selling the shares boosts the number of Goldman shares available for trading and allows Sumitomo Mitsui and Kamehameha to cash out at a profit.

"The investment was always opportunistic," said Roy Smith, a New York University finance professor and retired Goldman partner. "There's no reason to continue it."

"I don't expect this to have much impact on Goldman shares because investors were expecting this," said Diana Yates, an A.G. Edwards & Sons Inc. analyst who recommends investors hold Goldman shares.

The sale brings Goldman a step closer to having enough shares available for trading so that the company will be eligible for inclusion in the S&P 500, investors and analysts said.

If Kamehameha and Sumitomo Mitsui sell all their stock, Goldman will have about 40 percent of its shares available. Current or former Goldman employees owned almost 249 million shares, or 52 percent of the company, as of Sept. 30.

Still, S&P Chief Investment Strategist David Blitzer said the firm typically only adds a company to the index when at least half its shares are available for trading.

Blitzer, who chairs S&P's index selection committee, declined to comment specifically about Goldman. The S&P 500 includes all U.S. companies with a market value of $40 billion or more except for Berkshire Hathaway Inc., United Parcel Service Inc. and Goldman.

The increase in shares "is good for investors and for Goldman," Christopher Perry, a money manager for Turner Investment Partners, which owned 485,060 Goldman shares as of Sept. 30. "The idea is that it could be an S&P 500 addition." Perry said his firm doesn't plan to add to its stake or sell.

Inclusion in the S&P 500, the benchmark for U.S. stocks most often used by professional investors, will require index fund managers to buy the stock. More than $1 trillion is held in portfolios that track the index, according to S&P, a unit of McGraw Hill Cos.

Sumitomo was the first outside investor in Goldman, injecting $500 million into the firm for a 12.5 percent stake in 1986. In 1992, Kamehameha's investments gave the Hawaiian education trust a more than 10 percent stake in Goldman.

Goldman raised capital from outside investors in the early 1990s in part because senior partners, including some of the most experienced executives who led the firm to record profits, were retiring. Goldman had about $5 billion of capital at the end of fiscal 1993, not including $819 million reserved for taxes and payments to retiring partners.

Japan's slumping economy has led to bankruptcies and job losses that have in turn hurt loans made by Sumitomo Mitsui and other Japanese banks.

"The fact is they've made a lot of money on it," said Smith. "The one bit of sunshine they had over the last 10 years is their stake in Goldman Sachs."

Kamehameha Activities is an affiliate of Bernice Pauahi Bishop Estate, Hawaii's largest private landowner and one of the biggest U.S. charitable trusts. Income from the Bishop Estate's assets is used to pay for more investments as well as to fund the education of native Hawaiians at the Kamehameha Schools.

Goldman now has about 479 million shares outstanding, giving it a market value of more than $45 billion.

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