1. Berkshire Hathaway–Goldman Sachs
On Sept. 24, 2008, with financial panic swirling around him, Warren Buffett cut a deal with investment bank Goldman Sachs. (This is the first of several entries on this list involving deals made in previous years that paid off in 2009.) Buffett's Berkshire Hathaway handed over $5 billion — and with it his de facto seal of approval — in exchange for preferred shares that paid a 10% dividend, plus warrants to buy 43.5 million shares of common stock for $115 apiece. A year later, those warrants could have been redeemed for a $3 billion profit. Buffett has thus far opted to hold on to them, betting that Goldman's stock price will go higher before the warrants expire in 2013. A similar Berkshire deal with General Electric wasn't quite such a slam dunk, but it was still a moneymaker. By buying when everyone else was selling — and by negotiating a far better deal than the Treasury Department did with its bank investments a few weeks later — the Oracle of Omaha scored big again.
2. JPMorgan Chase and the Deals It Didn't Do
As the strange business of slicing and reslicing mortgage loans into collateralized debt obligations (CDOs) boomed in 2005 and 2006, JPMorgan Chase stood on the sidelines, its executives watching in bewilderment as rivals Citigroup, Merrill Lynch and UBS churned out hundreds of billions of dollars' worth of the securities. As Gillian Tett told the story in her 2009 book Fools Gold, the JPMorgan derivatives team, which had effectively invented the CDO, thought the risks of mortgage CDOs were too high, and the bank's new chief executive, Jamie Dimon, agreed. This caution hurt JPMorgan's profits at the time but paid off in spades in 2009, as the bank earned $8.5 billion in the first three quarters of the year while most of its rivals continued to flounder.
After decades in the shadow of North Carolina empire builders Bank of America and Wachovia, Winston-Salem-based BB&T (the name stands for Branch Banking & Trust Co.) emerged as the state's big winner in 2009. Wachovia is now gone, sold off in a rush to Wells Fargo late last year, and Bank of America was still licking its (self-inflicted) wounds. BB&T, meanwhile, was profitable and got a lot bigger after picking up the deposits and branches of Alabama-based Colonial Bank — the biggest bank failure of 2009. BB&T became the country's eighth largest bank by assets, and while it didn't escape the collapse of the commercial real estate market unscathed, it was in a healthier state than most of its rivals.
4. Berkshire Hathaway–Burlington Northern
Berkshire first bought a stake in the country's largest railroad operator in 2007; in November it announced that it was acquiring the 77% it did not own for $26.3 billion in cash and stock. It was a classic Warren Buffett acquisition: unglamorous and steadily profitable. It also came with a CEO, Matthew K. Rose, who is young (he's 50) and capable enough to be seen as a candidate to run Berkshire's operations when Buffett no longer can. Most interestingly, it made clear that Berkshire Hathaway, which rose to prominence from the 1970s to the 1990s as an investment fund with a few businesses attached, had chiefly become a conglomerate making a big bet on the future of America's industrial economy.
5. Ford's $23.6 Billion Loan Grab
Not long after taking over as Ford Motor Co. CEO in 2006, Alan Mulally asked the country's big banks for a big loan. The money, Mulally said at the time, was a "cushion to protect for a recession or other unexpected event." It was a cushion that turned out to be the difference between surviving intact and becoming a ward of the state. As rivals GM and Chrysler turned to Washington for help and eventually had to surrender to government control, Ford remained in charge of its destiny. As a result, the company became the clear front runner among the Detroit Three, cleaning up in the Cash for Clunkers bonanza and returning to profit in the third quarter.
6. BlackRock–Barclays Global Investors
The credit crisis elevated BlackRock's Larry Fink and his West Coast rival Bill Gross at Pimco, fixed-income investors who actually seemed to know what they were doing, to new positions of prominence. It also created opportunities. BlackRock got some high-profile government assignments (managing the troubled assets of Bear Stearns and AIG, evaluating the portfolios of Fannie Mae and Freddie Mac, etc.). And in 2009 it acquired its way to the status of world's biggest asset manager. San Francisco–based Barclays Global Investors pioneered index funds as a division of Wells Fargo in the early 1970s, and more recently had become a big force in exchange-traded funds and quantitative active management. It was on the market because parent Barclays needed cash to shore up its capital base. BlackRock stood ready to pay the price. A mere 21 years after Fink founded it, the firm was on top of the world.
t was a big year for big mergers of old-line tech companies (old line in this context meaning founded in the 20th century) — Oracle–Sun Microsystems, Dell–Perot Systems, Xerox–Affiliated Computer Services, HP-3Com. But since we can't tell which of those deals will work out, why not focus instead on a merger that was consummated in 2008 and started paying dividends this year? With the acquisition of the IT-services firm founded by H. Ross Perot in 1962, HP established itself as a services giant on par with Perot's former employer, IBM. And as HP's product businesses struggled in 2009, it was big profits from EDS that kept the company solidly in the black.
Google, like just about everyone else, was still trying to figure out how advertising was going to work on mobile devices. So it will fork over $750 million in stock to buy AdMob, a pioneer in dreaming up ways to squeeze ads into iPhone applications. Apple reportedly sniffed around the firm too, but Google closed the deal. For AdMob founder Omar Hamoui, who started the firm just three years ago while working on an MBA at the University of Pennsylvania's Wharton School (his official bio said he was "on leave" from Wharton), it was a spectacularly quick payoff. Same goes for his blue-chip venture-capital backers at Accel Partners and Sequoia Capital.
9. Time Warner Spins Off Cable and AOL
Yeah, yeah, we work there. (Time Inc., the publisher of TIME, is a Time Warner subsidiary.) And it was certainly too early to declare new CEO Jeff Bewkes' slimming-down strategy a success. But if the 2001 AOL–Time Warner merger was perhaps the worst business deal ever, then spinning off AOL — as Time Warner did in December — had to be worth something. Plus, by ditching AOL and Time Warner Cable, Bewkes created a more focused, less indebted company that might stand a chance of maneuvering its way through the media's time of epic upheaval. Not sure if we ink- (and pixel-) stained wretches will be around to enjoy the ride, of course. But there was a logic to the strategy.
10. Mead Johnson Nutrition
Nobody would have thought back in the dark days of February that 2009 might turn out to be a good year for initial public offerings. But it was, and the first of the year's IPOs — brought to the market on Feb. 11, after a three-month drought in new offerings — turned out to be perhaps the best. Mead Johnson, which was founded in 1905 and acquired by Bristol-Myers in 1967 before being spun off this year, offered a long history and reliable earnings that reassured skittish investors. But the global expansion of the middle class offered the promise of growing markets for its infant- and child-nutrition products (Enfamil is its best-known brand). As of late November, Mead Johnson's stock was up almost 90% from its $24 IPO price.
By Justin Fox Time.com