GE Announces $12 Billion Stock Offering; Investment of $3 Billion by Warren Buffett

Posted by: Jena McGregor on October 1, 2008

The Oracle of Omaha has done it again. After investing $5 billion in Goldman Sachs on Sept. 23, he’s now agreed to buy $3 billion of perpetual preferred stock from General Electric Co. in a similar deal.

The news came paired with the announcement that GE will be offering at least $12 billion in common stock. In doing so, GE, which gets nearly half its revenues from its financial arm, joins the ranks of other ailing financial behemoths that have been forced to raise capital recently.

The move comes off a difficult two and a half weeks for GE’s CEO, Jeff Immelt. After issuing a statement on Sept. 14 designed to reassure investors, GE admitted to problems the finance unit was causing last week with several major announcements. He cut the company’s third-quarter and full-year earnings guidance, “reflecting unprecedented weakness and volatility in the financial services markets,” the company said in a statement. In addition, he suspended stock buybacks and said GE was going to maintain its dividend, but also said GE was not going to raise it.

Earlier today, GE’s shares, already battered by concerns in recent weeks about its financial unit’s exposure to the credit crisis, fell by as much as 8%, following Deutsche Bank analyst Nigel Coe’s move to lower his 2008 earnings estimate by 9%, along with a downward adjustment for 2009 expectations. Spreads on credit default swaps also jumped significantly, too. According to the Wall Street Journal, citing Phoenix Partners Group, it now costs $500,000 to protect $10 million of bonds for five years, down from $650,000 prior to the announcement.

The preferred stock deal with Buffett has a dividend of 10% and is callable after three years at a 10% premium. Berkshire Hathaway will also receive warrants to purchase $3 billion of common stock with a strike price of $22.25 per share, which is exercisable at any time for a five-year term.

Immelt said in a statement that the deal is designed to enhance GE’s flexibility and “allows us to execute on our liquidity plan even faster. Plus, he added, “it gives us the opportunity to play offense in this market should conditions allow.” He reiterated his commitment to GE’s AAA rating and said that GE continued to meet its commercial paper needs. While still down for the day, GE’s shares were up on the news.

Reader Comments

Karl

October 1, 2008 4:40 PM

I just got finished doing a job for a retired Banker a few weeks ago. He told me yeasterday he cashed-in all of his stock two weeks ago. I asked him that if he had waited until yesterday, Sept. 29th, to cash it in, would he have lost some money as a result of waiting. He said he would have lost about $100,000 more if he had waited until yesterday. Then he told me that he wasn't able to cash-in some of his BONDS because they were only paying sixty cents on the dollar. He told me the name of the company that the BONDS were invested with was Genworth. He said it's owned by GE. In my opinion, GE's stock will go BELOW $18.00 by January 23rd 2009. WHY? Because 'Annual Sales Results' will be reported by the Fortune 500 in early 2009. They won't be very good. They'll be TERRIBLE, for most. This will cause even the "mighty" GE's stock to fall. Hey Mr. Buffett, you might want to re-consider your "bet" on GE. I know something that you might NOT know!!!!!!!! Here it is- QUOTE: "The prices (values) that you see posted for a share of stock for a publicly held company are all a lie. It's an illusion." - Harvard Business Professor, to his class in late 2004. 'Google' this to read that, and OTHER things he said- RIP OFF REPORT FUEL FREEDOM INTERNATIONAL MPG CAPS, and go to the 2001 Toyota Tacoma Report, and then to the 'Update' entitled- "Blame it on a Lawyer". Go Harvard!! Go BusinessWeek!! P.S. Mr. Buffett, 'Google' this too- RIP OFF REPORT GM CREDIT CARD SERVICES, and read the 1st 'Update' from 9-3-2007. QUOTE: "The collapse of the U.S. economy is in its infancy. Get all of your money out of the stock market..."

Rajan

October 1, 2008 4:52 PM

I believe, we have seen enough Finance short-fall of giant companies. We heard enough of Government rescuuing financial firms due to their inability to raise enough money. Ford and GM got rescued as well. Now, GE is next waiting for the Government to step in any time soon.

Dada

October 1, 2008 5:48 PM

Buffett is confident with the economics of GE and the capability of its management.

mike deevee

October 1, 2008 5:54 PM

The price of a stock is unrelated to the value of a company?

You just figured this out? Buffett has been saying that for longer than you have (most likely) been alive.

lucas swisher

October 1, 2008 6:31 PM

In response to karl:
Warren buffet is a growth investor. He has faith in the longterm future of the company. He's done this before and made a load of money...

Incredulous

October 1, 2008 8:51 PM

In my opinion, anyone who takes financial advice from Karl - what is he, a gardener, plumber or pool boy? - deserves everything he or she gets!

Calvin

October 1, 2008 10:16 PM

Time will tell whether Buffet is correct or not?

10% annual dividend - $30mil per year + with strike price of $22.25 per share

I think it worth =)

Henry L.

October 1, 2008 10:42 PM

We must think for ourselves and form our own opinions based on what we understand. Just because Warren Buffet is investing in some company doesn't automatically make it the right investment choice (though I would be interested in the reasoning behind it). BUT given Buffet's track record, I definitely would not listen to Karl.

Tristan

October 2, 2008 3:06 AM

Buffett really seems to be throwing around cash lately. This credit crunch is ideal for Berkshire which was sitting on as much as $40 billion cash at the start of the year. Lots of well run companies that have short term liquidity problems and he can negotiate prefered stock deals. Seems crazy that other companies (ie Microsoft) are doing share buy backs instead of doing similar deals. I suppose their sharholders don't trust management the way Bershire shareholders do. Also I think many companies have got themselves in trouble for taking their eyes off the core business. Still...Go Buffett.

Alex

October 2, 2008 7:25 AM

Hmmmmm...Karl, the angry novice investor who believes everything he 'googles' and probably everything he hears on CNN? Or Warren, the expert investor who has made unmatched gains for decades...I just don't know who to trust!?!?!?!?!

G Money 2008

October 3, 2008 2:46 PM

Does anyone know the history of Warren Buffett? If not, you should GOOGLE him.

He generallyhas made his money investing in stable companies that are currently undervalued... like GE.

We would all do so well to follow his lead. Of course we don't get to purchase Preferred Shares at such a great deal, but that doesn't mean we can't wait to see if he exercises his option for common stock.

If you want to be... duplicate that which you wish to be.


My $0.02 common.

ALEX

February 7, 2009 8:36 PM

GO BUFFET. I BELIEVE YOU

Warren Ponzi

March 4, 2009 2:47 PM

Looks to me like Karl got it right! Under $6 today, Buffett is going swimming in Wall St's cesspool. Looks to me like Warren might be running a Ponzi scheme bigger than Madoff! Well, we all know the US stock market is the biggest Ponzi scheme in history.

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