Warren Buffett buys again, invests $300 million in US building materials supplier USG

American stock markets may be in the doldrums, but that hasn't stopped Warren Buffett from putting his money where his mouth is. Building materials supplier USG Corp said on Friday it plans to raise $400 million by selling convertible notes, most of which will be bought by Buffett's Berkshire Hathaway Inc.

Berkshire agreed to buy $300 million of USG's 10 per cent contingent convertible senior notes due 2018 and Toronto-based Fairfax Financial Holdings Ltd. will buy the rest, USG said. Assuming USG shareholders give their approval at a meeting in the first quarter of next year, the notes will convert into shares of USG common stock at a conversion price of $11.40 per share.

Not that Buffett will lose if the notes are not converted to equity. If shareholder approval is not obtained prior to the 135th day after closing of the sale of the notes, the notes will bear interest at 20 per cent per annum until after shareholder approval is obtained.

Berkshire, which holds a 17 per cent stake in USG, and Fairfax, a new shareholder, will vote for the proposal to permit conversion of the debt into equity. The date of the shareholder meeting has yet to be determined.

USG aims to apply proceeds of the notes sale toward a partial repayment of amounts outstanding under its unsecured credit agreement. Word of the additional capital comes just days after analysts publicly expressed concern that the company, which emerged from bankruptcy in June 2006, might not be able to meet its debt payments.

"This transaction provides USG with long-term capital that significantly improves our financial flexibility as we manage through the steep recession in our primary markets," USG CEO William C Foote said in a statement. The Chicago-based company declined 84 per cent this year through yesterday in New York Stock Exchange composite trading.

As soon as news of Buffett's interest became public, USG shares started gaining at the bourses. They were up $1.16, or 20.5 per cent, to $6.82 in midday trading. In the past 52 weeks the stock has ranged between $5.50 and $40.25 per share.

Buffett has already expressed his belief in the resilience of American equity through a much-publicized article published in the New York Times late last month. Calling for confidence in US business, something in short supply after the credit crisis spiralled into something resembling a market crash, Buffet said he's buying American stocks and, if prices stay attractive, his personal investments, as distinct from his stake in Berkshire Hathaway Inc., will soon be wholly in American equities. (See: Warren Buffett expresses support for American stocks)

Not that Buffett needed a published article to signal his intentions. The recent past has been prime hunting season for Buffett, long famed for seeking high-quality investments at bargain prices. On 24 September he agreed to invest as much as $10 billion in Goldman Sachs as part of its capital-raising efforts, a week after his MidAmerican Energy Co decided to acquire Constellation Energy Group for $4.7 billion in cash on 18 September, a discount of nearly 60 per cent from levels at which the ailing power firm's shares were trading two days prior to the deal. (See: Warren Buffett invests $5 billion in Goldman Sachs / See: Warren Buffett's MidAmerican Energy bids $4.7 billion for Constellation Energy)

Late September, a Berkshire Hathaway Inc subsidiary said it had acquired a 10-per cent stake in the firm BYD Co, a Chinese producer of rechargeable batteries, electric cars and car parts. (See: Warren Buffett moves into electric car market with $231 million investment in Chinese firm BYD)

He has also put in big money in conglomerate GE in a five-year deal, according to which his investment vehicle Berkshire Hathaway will buy $3 billion of GE's preferred stock at a guaranteed 10-per cent dividend that are callable by 2011. It further gives Berkshire warrants to purchase $3 billion of GE's common stock at a strike price of $22.25 a share. The warrants can be exercised anytime through 2013. (See: Warren Buffett invests $3 billion in GE's $15-billion capital raising)