Warren Buffett's Billions Go Into General Electric

Berkshire Hathaway gets another great deal, but not so great for General Electric shareholders

GE just sold Berkshire Hathaway $3 billion in perpetual preferred bonds that pay a 10% coupon and can be called at a 10% premium in 3 years.

As further consideration, he got warrants giving him the right to purchase up to $3 billion in stock at $22.25.

This is an even better deal that his Goldman deal where he also got 10%, but the instrument itself is convertible to common at $115.  Here, he gets to keep the high yielding debt so that he earns 40% over 3 years (who else earns 40% over 3 years in a AAA bond?) and he gets the equity option.

You can't get a deal like this.  Don't jump into GE on the news.  Just keep buying BRK.B.

Jason Rodgers
Jason Rodgers: Jason Rodgers was an experienced research analyst for a major bank prior to retiring to run his own investment consultancy in beautiful Lihue, Hawaii. Jason contributed articles to BestCashCow from 2008 to 2014.

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  • Herman Kline

    October 02, 2008

    This deal raises more questions than answers. Why is GE raising capital on these terms and why do they need to scramble for $12 billion beyond this?

  • JRodgers

    October 03, 2008

    Herman, I think that GE was in real trouble. It is also increasingly clear that Jack Welsh went to Buffett to ask for his help - Buffett even said that is why he did the deal. So, an additional question that you might ask is what the hell is Welsh doing still working for GE? He resigned as CEO 7 years ago.

  • Sam Cass

    October 03, 2008

    Welsh probably owns a bunch of GE stock so it's in his best interests to help out the company. It's also common for a former CEO of a company to stay involved at some level.

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