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Goldman's golden day
August 10, 1998: 2:34 p.m. ET

Goldman Sachs' partners approve a watershed public offering of shares
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NEW YORK (CNNfn) - The 190 partners of Goldman Sachs & Co., the storied Wall Street investment bank that has played midwife to thousands of initial public offerings, overwhelmingly approved a plan on Monday to take the firm public after a 129-year history as a partnership.
     A registration statement relating to the offering is expected to be filed later this summer, Goldman Sachs said in a statement Monday.
     Experts variously estimate the IPO's value at anywhere from $25 billion to $30 billion. It will give many of Goldman's full partners a windfall in stock worth $100 million or more, while enabling the firm to generate the blockbuster profits it feels it needs to keep ahead of the financial consolidation curve and remain competitive.
     Goldman Sachs' six-member executive board already agreed, in June, to launch a public offering.
     Monday's meeting of partners, however, capped a wrenching bout of soul-searching that stretched across three decades and scores of fractious board meetings. For Goldman, the agonizing question was always one of whether having their symbol emblazoned on the Big Board's ticker was worth the cost in forfeited privacy and dominion over their own assets.
     Until now, on at least half a dozen occasions, the resounding answer had been a shrewd "No."
     Yet in taking its watershed step Monday, Goldman's partners yielded to the calculus of consolidation: To compete against Wall Street's emerging new behemoths meant doing so on their terms, in their own -- public -- arena.
     In going public, Goldman will sell 10-15 percent of its common equity, making it one of the largest IPOs ever. Barring a steep decline in the stock market, the shares could be issued as early as October.
     For Goldman, the move marks a psychic sea change from the tightly knit culture of personal risk and reward that has held sway at the firm since its founding in 1869 by a German immigrant named Marcus Goldman.
     As one of the last privately held companies in a rapidly consolidating Wall Street, Goldman has proven a bulwark of financial wizardry, racking up record pre-tax profits of more than $3 billion in its last fiscal year, ended Nov. 28, 1997.
     For the beneficiaries of Goldman's golden run, the upshot of such risk-taking has been bonuses that have been the envy of lesser Street stars: $5 million for junior partners and $10 million for senior partners.
A windfall for the 190 partners

     Taking the company public will reap a bounty in instant profits for the firm's 190 partners and its 200 managing partners. Each managing partner likely will receive $8 million to $12 million.
     Under the deal's terms, Goldman's 110 retired, or "limited," partners will have the option of converting their capital assets to cash, bonds or stock, Reuters reported, citing people close to the offering, If they choose to do so, they will be required to hold it for six months before selling.
     The limited partners' capital totals about $1.2 billion, according to reports. Junior partners may reap stock worth $27 million, based on conversion of their 0.25 percent equity.
     But the offering, in the thinking of the company's leaders, will more importantly help grow a nearly $7 billion capital base. Going public also will enhance the company's competitive position against rivals such as Morgan Stanley Dean Witter & Co., while allowing it to partake in the high-stakes buying binges that have swept the financial services industry.
     Hence, Goldman Sachs is banking on the IPO to raise the type of capital the bank has concluded is indispensable if it is going to remain viable against mega-merging rivals.
     Goldman has mulled -- and rejected -- plans to go public six times in the past two decades. The overriding concern, analysts have noted, has been that a public offering would drive out Goldman's top talent in managing director ranks by essentially depriving them of a chance to make partner or share in proceeds from the IPO.
     Two events may have shifted the tide, however, in recent years and months. One is a sharp profit plunge in 1994 that nearly wiped out the capital accounts of some top partners, raising the specter of a bail-out from the firm.
     The other seminal event may be the announced $70 billion merger of Travelers Group Inc. and Citicorp. Goldman saw its net income soar to at least $1 billion in each of its last two quarters. With profit performance as robust as that, Goldman's chiefs concluded that the time is as ripe as any for an IPO that could help the company keep its competitive edge.
     Jon Corzine and Henry Paulson Jr., Goldman Sachs' co-chairmen and co-chief executive officers, articulated their thinking in a statement last week.
     "As a public company, Goldman Sachs will have the financial strength and strategic flexibility to continue to serve our clients effectively, as well as to respond thoughtfully to the business and competitive environment over the long term," Corzine and Paulson said.
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