Berkshire Hathaway To Acquire 10.7 Million General Electric Shares, $260 Million Payday
Image via Flickr/ Chuck Miller
Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A) is ready to collect on its 2008 vote of confidence in General Electric Company (NYSE: GE), and it is dong so without selling a dime. Berkshire loaned GE $3 billion during the 2008 credit crises and received five-year warrants, giving it the right to buy around 135 million shares of GE at $22.25 each at the end of five years – a $3 billion purchase at the time. According to GE’s annual 10-K filing in February, the deal was modified with GE and Berkshire agreeing in January to a net share settlement of the warrants. The warrants expire today, giving Berkshire Hathaway stock that’s worth as much as the lender would have realized by implementing the warrants and then immediately selling the shares it had just received. As a result of the modification, Berkshire received 10.7 million shares valued at $260.6 million today, according to a filing with the Securities and Exchange Commission.
Buffett was something of a savior during the 2008 credit crises, helping to keep afloat some of the biggest U.S. corporations. Not only did he help GE, he put money into Goldman Sachs (NYSE: GS) after the collapse of Lehman Brothers Holdings Inc. initiated the worst financial slump since the Great Depression. Goldman also announced an amended deal in March of this year. Under the modified agreement Berkshire converted the warrants into shares equal in value to the difference between the warrants’ exercise price and the average closing price for Goldman shares in the 10 trading days prior to Oct. 1. Buffett and company got 13.1 million shares of GS after exercising the warrants earlier this month. The stake is valued at about $2.1 billion, making Berkshire Hathaway the seventh-largest shareholder of Goldman Sachs. The deal was costly for GS in more ways than one. Buffett secured a $5 billion preferred stake for the original investment, which Goldman Sachs redeemed in 2011 at a 10-percent premium. General Electric paid $3.3 billion in 2011 to redeem Berkshire’s preferred stock, which had paid a hefty 10-percent annual dividend.
As for General Electric, the company will release new quarterly earnings results on Friday morning before the market opens. Analysts expect profits of $3.6 billion, up 10 percent from a year ago. Revenue is expected to slip by 1 percent, to $35.9 billion, with earnings per share of $0.35, down from last year by 2 percent.
Disclosure: The author has no position in the stocks mentioned in this article, and does not intend to initiate any position in the next 48 hours.
