GE Raises Liquidity With Buffett & Public Offering (GE, BRK-A, GS)

General Electric Co. (NYSE: GE) is coming out swinging to halt the offensive rumors and credit concerns that have been hindering its stock.  The company made two key announcements to fight this.  GE will offer at least $12 billion of common stock to the public, plus a 15% share over-allotment option for the underwriters.  The offering is expected to be priced prior to Thursday’s market open in the U.S.  It has also has agreed to sell $3 billion of preferred stock to Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A).

GE’s agreement to sell $3 billion of perpetual preferred stock in aprivate offering to Berkshire Hathaway has a dividend of 10% and iscallable after three years at a 10% premium.   Berkshire Hathaway willalso receive warrants to purchase $3 billion of common stock with astrike price of $22.25 per share, which is exercisable fora five-year term.  Buffett held more than 7.7 million shares of GE at the last investment record date, and here were his full holdings.

If this sounds a lot like the same deal Mr. Buffett struck with GoldmanSachs Group (NYSE: GS), it is.   In fact, Goldman Sachs will be thebookrunner for the deal.  GE said in the release that it also expectsthat Banc of America Securities, Citi, Deutsche Bank, J.P. Morgan, andMorgan Stanley will be added as additional bookrunners.

GE shares were down over 8% earlier in the day and had been downroughly 10% at one point.  Now, shares are down only about 3.5% at$24.58.  So far the market is treating this as a good stabilizationeffort.

Jon C. Ogg
October 1, 2008