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Buffett To Inject $3B Into GE
Once again, the Oracle of Omaha demonstrates his confidence in Wall Street.
October 2, 2008
Warren Buffett, whose confidence in Wall Street during the reeling of the financial services sector has been well documented, will invest $3 billion into financial giant General Electric. Buffett’s vote of confidence in GE, a company whose finance arm is hard hit, comes on the same day the conglomerate announced an offering of at least $12 billion in common stock to the public. It also comes just days after Buffett swooped in and injected $5 billion in Goldman Sachs.
The investment is structured so that Buffett’s Berkshire Hathaway will buy GE perpetual preferred shares in a private offering. The shares pay of dividend of 10% and are callable at a 10% premium after three years. Buffett also received warrants to buy an additional $3 billion in common stock priced at $22.25 per share over the next five years.
GE’s exposure to the financial sector through its finance arm has weighed heavily on the stock of late, and just last week the company lowered third-quarter and full-year earnings expectations citing "unprecedented weakness and volatility in the financial-services markets.” The company also suspended stock buybacks and may interrupt a dividend increase that has been steady since the 1970’s. Its shares have been under pressure, and remain down about 3% in late-afternoon trading.
Buffett's investment style historically has been to selectively invest into top-tier management teams. “GE is the symbol of American business to the world,” said Buffett of GE in a statement. “I have been a friend and admirer of GE and its leaders for decades. They have strong global brands and businesses with which I am quite familiar. I am confident that GE will continue to be successful in the years to come.”
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