Buffett to buy US$3b of GE preferred stock

Published: Thursday October 2, 2008

Warren Buffett's Berkshire Hathaway Inc is investing US$3 billion in General Electric Company, a huge vote of confidence for an iconic American company battered by the credit crisis.

It is the second time in as many weeks that Berkshire Hathaway has moved to shore up a company long associated with ironclad financial health.

In late September, Buffett invested at least US$5 billion in Goldman Sachs, whose shares had tumbled on investor fears that the famed investment bank could face the same kinds of funding squeezes as Bear Stearns and Lehman Brothers.

Dividend

Buffett is buying US$3 billion of General Electric Company preferred shares. The perpetual preferred stock carries a dividend of 10 per cent, similar to the terms Buffett struck with Goldman Sachs.

GE, based in Fairfield, also plans to sell at least US$12 billion worth of common stock to the public.

Shares of GE, which fell by as much as 8 per cent earlier Wednesday, pared their losses on the news. They traded down about 65 cents, or 2.6 percent, at $24.85, in afternoon trade.

Common shares

Berkshire also expects to receive warrants to buy $3 billion worth of GE common shares for US$22.25 each, exercisable at any time for a five-year term.

CEO Jeff Immelt said the sale enhances GE's flexibility and gives the company "the opportunity to play offence in this market should conditions allow."

GE's share value has fallen during the financial crisis on Wall Street over the last several weeks. Analysts say investors have avoided the manufacturer of jet engines, appliances, locomotives and other industrial products because nearly half its profit comes from a loan and lease business, which has been hurt by volatile credit markets.

Last week, GE lowered its guidance, saying it expects profit for the year to fall about 10 per cent, to between US$19.5 billion and US$21 billion, or US$1.95 to US$2.10 per share, from its prior forecast of US$22 billion to US$23 billion, or US$2.20 to US$2.30 per share.


Source: Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20081002/business/business2.html