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Wealthy Goldman Sachs clients stand to rake in $1 billion on Uber IPO

Key Points
  • Goldman Sachs’ private wealth clients are poised to make a $1 billion profit on paper through Uber’s IPO, according to a person familiar with the fundraising.
  • The clients bought convertible bonds four years ago, which turn from high-yielding debt into stock when the company goes public. These clients now have a 40% discount on the stock, a person familiar with the matter tells CNBC.
  • Those clients' investments will translate into a roughly 3%stake in Uber, which The Wall Street Journal first reported.
David Solomon of Goldman Sachs
Andrew Harrer | Bloomberg | Getty Images

Goldman Sachs' millionaire clients are teed up to be among the biggest winners in Uber's initial public offering this week.

About four years ago, the bank's private-wealth customers were offered what are known as convertible bonds. In this case, the Uber corporate bonds turn into discounted stock when the ride-hailing company goes public, according to a person familiar with the fundraising.

Uber raked in $1.6 billion in those debt sales to Goldman's clients, who will now get a 40% discount on Uber stock as it debuts on the New York Stock Exchange, the person told CNBC. The Wall Street Journal first reported the news and financial figures.

Collectively, those clients' investments will amount to a 3.4% stake in Uber, the person said. That percentage is worth $2.7 billion if Uber prices its shares in the middle of its expected price range, which a source told CNBC this week is likely to happen. The stake results in a $1 billion profit on paper for the Goldman clients in just a matter of years, the person said.

The San Francisco-based start-up is expected to price shares on Thursday and start trading Friday under the symbol "UBER." On a fully diluted basis, the company's valuation could come in at $91.51 billion on the high end. At the midpoint of that range, Uber's valuation would be about $86 billion.

The convertible bond deal let Goldman Sachs clients get a deeper discount on the stock the longer Uber stayed private, the person said. Luckily for certain Goldman clients, Uber remained private for a decade. During that time, the interest on Uber debt also increased. The bonds started out by kicking back 2.5% for investors in the early years and rose to as high as 12.5% this year, the person said.

The Goldman Sachs shareholders are subject to the same lockup rules as the investment bank, which has a separate $500 million investment in Uber, according to The Wall Street Journal report. The bank is barred from selling shares for 6 months, and both Goldman and its clients are not allowed to enter into hedges or any other transactions such as shorting before that lockup period is over, according to the Journal.

Shares of rival Lyft have fallen 30% since its March stock market debut. Some have blamed a hedge related to a trade between billionaire investors Carl Icahn and George Soros for the stock's underperformance. According to the Journal, Uber's lawyers combed through Lyft's lockup agreement for any loopholes that permitted the hedge, looking to close them for Uber ahead of its own IPO.

There are plenty of other winners in Uber's highly anticipated debut. Softbank Vision Fund is Uber's largest shareholder. The world's largest technology investor announced an additional $1 billion investment in Uber's self-driving vehicle unit just weeks before its initial public offering. Venture capital firm Benchmark is its second-largest shareholder with 8.5% of total shares on the private market, followed by founder and former CEO Travis Kalanick, who was replaced by Dara Khosrowshahi in 2017.

CNBC's John Schoen

— CNBC'S Leslie Picker and Deirdre Bosa contributed reporting.