INSIDE SCOOP
(CRM)com and (BRKA) both recently disclosed investments in (SNOW) but there is more to the story than their stated percentage stakes in the cloud-computing firm.
Snowflake stock (ticker: SNOW) was hot when the company went public in September. Class A shares were priced at $120 each for the initial public offering, and more than doubled on the first day of trading, although they have traded a little lower since.
Salesforce (CRM) unit Salesforce Ventures and ’s Berkshire Hathaway ( (BRKA)) had agreed—prior to Snowflake’s IPO, when the pricing was contemplated to be $105 a share—to each buy $250 million, or 2,380,952, of the newly public class A shares, from Snowflake. The shares were to be sold in private placements, transactions separate from the IPO itself, although the pricing was to be the same.
When the IPO price was raised to $120, that cut the number of class A shares in the private placements to 2,083,333 for each Salesforce and Berkshire Hathaway.
Salesforce had already initially invested in Snowflake some months before the IPO. Salesforce Ventures was a new investor in series G preferred shares in February 2020, Crunchbase noted. Those shares were priced at $38.77 each. Salesforce and Snowflake announced a data-integration agreement in June.
With Snowflake’s IPO in September, each of the series of preferred shares were converted into class B Snowflake shares on a one-to-one basis. Salesforce’s exact investment wasn’t publicly disclosed, as prior to the IPO, Snowflake was only required to disclose the holdings of directors, executive officers, and owners of more than 5% of any class of its capital stock.
Class B Snowflake shares, which don’t publicly trade, each carry 10 votes, while each class A share carries one vote. Class B shares are convertible into class A shares, generally at any time, by the holder.
After the IPO, Salesforce indicated in a form it filed with the Securities and Exchange Commission that it owned the equivalent of 4,253,644 class A Snowflake shares, consisting of 2,083,333 class A shares and 2,170,311 shares of the Issuer’s Class B common stock, for a 9.9% stake in class A shares.
Salesforce noted in a footnote, however, that it owns an additional 1.7 million class B shares not included in that reported stake because they aren’t convertible into class A shares within 60 days. It cited an agreement that it wouldn’t exceed a stake of more than 9.99% of Snowflake’s class A shares.
The form that Salesforce used to report its Snowflake stake is known as a Schedule 13G, which is used to disclose a stake of more than 5% in a publicly traded company when the filer has no intention to agitate for change at the company. SEC guidelines provide for the disclosure of shares owned by the filer or shares the filer has the right to acquire (including through a conversion) within the next 60 days. Salesforce had no regulatory obligation to disclose it owned the additional 1.7 million class B Snowflake shares because they aren’t convertible in that time frame.
Berkshire Hathaway’s Schedule 13G form indicated that it owned 6,125,376 class A Snowflake shares, 15.2% of those outstanding shares. That’s the exact total of the 2,083,333 class A shares purchased from Snowflake in the private placement, and 4,042,043 more class A shares Berkshire Hathaway purchased from an undisclosed Snowflake shareholder.
Snowflake and Salesforce declined to comment for this article. Berkshire Hathaway didn’t respond to requests for comment.
One shouldn’t think that Salesforce’s 9.9% stake in class A shares, and Berkshire Hathaway’s 15.2% stake represent overall ownership in Snowflake itself. Salesforce noted that there are now 40,408,709 class A Snowflake shares outstanding, which is the base from which Salesforce’s and Berkshire Hathaway’s respective stakes are calculated.
The total of about 40 million is dwarfed by the number of supervoting shares. After the conversion of the pre-IPO preferred shares, Snowflake has 240,486,119 class B shares outstanding. Using the combined classes A and B share counts, there are 280,894,828 shares outstanding. Berkshire Hathaway’s ownership of Snowflake stands at about 2.2% of the company’s equity. Salesforce’s stake, including all its shares, stands at 2.1%.
Salesforce may be sitting on a windfall of paper profits. If all of its 3,868,970 class B Snowflake shares were derived from series G preferred shares, Salesforce paid a total of $150 million for them. Assuming their conversation to class A shares at Friday’s closing price of $227.10, those shares are worth $879 million.
In fact, all shares purchased at the IPO price have appreciated considerably. The $250 million of class A Snowflake shares Salesforce and Berkshire Hathaway each bought in private placements are now worth $473 million.
Inside Scoop is a regular Barron’s feature covering stock transactions by corporate executives and board members—so-called insiders—as well as large shareholders, politicians, and other prominent figures. Due to their insider status, these investors are required to disclose stock trades with the Securities and Exchange Commission or other regulatory groups.
Write to Ed Lin at [email protected] and follow @BarronsEdLin.
