GE in $12 B Offering; Raises $3 B from Buffett

123jump.com Staff
02 Oct, 2008
New York City

General Electric, one of the very few AAA rated companies was forced to raise $12 billion in public offering that closes before the market opening today. The company also struck a tough deal with Warren Buffett controlled Berkshire Hathaway for $3 billion at 10% dividend and a cheap warrant.

[R]12:10 AM New York – General Electric is expected to complete $12 billion in public offering today before the market opening and accepts $3 billion from Warren Buffett in exchange of punishing 10% dividend.[/R]

General Electric surprised the market with a plan to raise at least $12 billion in common stock offering and raise additional 15% or $1.8 billion in the next thirty days at the discretion of the underwriters.

GE also agreed to sell $3 billion of non-convertible preferred stock to Berkshire Hathaway, Inc that pays 10% dividend and is callable after three years at 10% premium. Berkshire also gets warrants to purchase $3 billion of common stock at any time in the next five years at $22.25 a share price.

In a sign of times, General Electric, one of the very few AAA rated companies was forced to pay 10% dividend on a preferred stock and a warrant that allows the legendary investor to buy its stock at a bargain price, the deal that most common stock holders will never get.

The vote of confidence from Warren Buffett is likely to lift sentiment in General Electric stock trading. Buffett on September 23 purchased $3 billion of Goldman Sachs 10% preferred stock. Investment in General Electric will be the fourth multi billion deal this year by Warren Buffett after his investment in Goldman Sachs, Wm Wrigley, Rohm & Haas and investment of $4.5 billion to purchase 60% of Marmon Holdings owned Pritzker family at the end of last year.

Berkshire Hathaway chairman and chief executive Warren Buffett said, “GE is the symbol of American business to the world. I have been a friend and admirer of GE and its leaders for decades. They have strong global brands and businesses with which I am quite familiar. I am confident that GE will continue to be successful in the years to come.”

Goldman Sachs is the lead book runner and GE expects to add Banc of America Securities LLC, Citi, Deutsche Bank Securities, JP Morgan and Morgan Stanley.

The offering is expected to be complete before the opening of the markets on Thursday.

The chief executive Jeff Immelt reiterated the company’s earnings outlook and added, “including third quarter financial services earnings of approximately $2 billion and industrial earnings growth of between 10 and 15 percent, excluding our Consumer & Industrial business. “

General Electric ((GE)) at the time of the release of second quarter earnings estimated third quarter revenue of $49 billion and earnings per share between 50 cents and 54 cents a share. The company estimated infrastructure revenue and operating earnings to rise 20% and commercial finance revenue to decline between 10% and 15%.