Buffett exercises crisis-era warrants on GE stock


Berkshire Hathaway (BRK.A, BRK.B) exercises warrants on 10.7M shares of General Electric (GE).

The warrants are tied to a capital injection Buffett made in October of 2008 to assist GE in grappling with the financial crisis.

The contract was set to expire tomorrow.

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Comments (14)
  • doc47
    , contributor
    Comments (1800) | Send Message
     
    Nothing exceeds like excess!
    16 Oct 2013, 06:22 PM Reply Like
  • StepUp
    , contributor
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    Can someone who is smarter then I tell me what this means for GE and the stock? I assume this is good for the stock?
    16 Oct 2013, 06:32 PM Reply Like
  • DavidHart
    , contributor
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    What this means is, it depends... Exercising warrants is the same as buying stock. However, the warrants have a certain price associated with them. It looks like the strike price was $22.25. This means that he can turn around and sell the shares for a nice tidy profit. If he ends up with a lot of shares and immediately sells them, then the stock could go down short term. If he holds them, there will likely be little effect.

     

    At least, that's my understanding. I could, of course, be wrong...
    16 Oct 2013, 07:46 PM Reply Like
  • Philip Marlowe
    , contributor
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    There will be some dilution as GE will have to issue 10.7 m new shares to Berkshire. This should be very minor as they have 10 billion shares outstanding. On the positive side, GE can now say that Warren Buffet owns their stock. He will probably sell it soon, however.
    16 Oct 2013, 08:08 PM Reply Like
  • Philip Marlowe
    , contributor
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    Looks like Berkshire Hathaway just made 260 million dollars out of those. Not bad at all.

     

    http://cnb.cx/17LCHdB%27s+Berkshire+gets+
    16 Oct 2013, 08:05 PM Reply Like
  • Philip Marlowe
    , contributor
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    Here is another link that hopefully wont be mangled by Seeking alpha's software:

     

    http://bloom.bg/1hXvc9o
    16 Oct 2013, 08:12 PM Reply Like
  • patmaxfarm@beecreek.net
    , contributor
    Comments (4) | Send Message
     
    In 2008 Berkshire Hathaway helped General Electric when it provided $3 billion in return for preferred shares with a 10% dividend. General Electric bought the shares back in September of 2011, at an estimated profit of $1.2 billion to Berkshire. In this deal, Buffett also RECEIVED WARRANTS to buy $3 billion in common stock at $22.50. General Electric's stock is currently trading at $22.47, right around the strike price. Once again, Buffett made a great deal for his shareholders.
    16 Oct 2013, 09:51 PM Reply Like
  • doc47
    , contributor
    Comments (1800) | Send Message
     
    GE closed at $24.36 today.
    16 Oct 2013, 11:11 PM Reply Like
  • jackcbondon
    , contributor
    Comment (1) | Send Message
     
    I would think it is not a great deal for Buffet, Yet. He loaned them 2.5B for 5 years. He made 10% on his money or less than 2% compounded per year. They were getting ready to expire so he had to excercise or lose out. My guess is he will hold the shares thinking they will go up. He won't sell them anytime soon unless he needs the money (ha)
    17 Oct 2013, 04:25 AM Reply Like
  • User 5921371
    , contributor
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    Was the dividend at 10% annually or for 5 years? That is a huge difference.
    17 Oct 2013, 07:12 AM Reply Like
  • Philip Marlowe
    , contributor
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    It was 10% annual.
    17 Oct 2013, 11:38 AM Reply Like
  • Feckless191
    , contributor
    Comments (1213) | Send Message
     
    $3 Billion in preferred stock with a 10% annual cost to GE represented an expense to GE of $300 million per year and an income to Buffet of that amount. Why do you think GE redeemed the preferred shares as soon as they could? It was costing them big time for GE management's peace of mind.
    17 Oct 2013, 03:21 PM Reply Like
  • Ian Cognito
    , contributor
    Comments (12) | Send Message
     
    Berkshire's GE investment had an IRR of 15.2%. It was less dilutive to GE to offer a cashless exercise. GE issued BRK 10 million shares compared to the 125 million they would have issued under the original terms of the deal.
    17 Oct 2013, 01:17 PM Reply Like
  • fra53ine
    , contributor
    Comments (38) | Send Message
     
    I think we are missing a key point, it was GE mismanagement of its Capital portfolio that cost the shareholders the Buffett warrant. Buffett saw GE was in chaos and went for the throat.
    My further dismay is that GE in yr 2000 was trading at about $52. While the banks and Industrials have recovered GE hasn't even reached 50% of the 2000 price in 13 yrs!
    18 Oct 2013, 06:47 AM Reply Like
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