Warren Buffett invests $3 billion in GE's $15-billion capital raising

02 October 2008

Close on the heels of his $5-billion capital infusion in Wall Street bank Goldman Sachs (See: Warren Buffett invests $5 billion in Goldman Sachs) Warren Buffet has infused $3-billion in GE, which is raising $15 billion in capital, in a deal coincidentally facilitated by Goldman Sachs.

Its financial business stung by a growing credit crisis worldwide, said yesterday it was launching a stock offering to raise $12 billion in cash and conducting a private deal with Buffett, similar to the one he struck with Goldman Sachs a week ago. Co-incidentally, Goldman is handling GE's stock offering.
As with the Goldman deal, analyst say GE is making step concessions to Buffett.

According to the terms of the 5-year deal, Buffett's 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.

Commenatators say that Warren Buffett is the only major financial institution that has ready cash to buy assets cheap, calling him as a mid-western vulture fund eating off the debris of the current financial chaos.

GE will also sell $12 billion in common shares to investors making the diversified industrial group the latest company to be forced to raise capital in recent weeks. It said the public offering of $12 billion of common stock will be priced before the US stock market opens Thursday. 

The fund raising was required to instill investor confidence in the company, as GE Capital, its finance arm that generates nearly half of GE's revnues, had lost 42 per cent in stock value since last year that had left investors worried, making this infusion look close to a bail out.