GE to raise $15B to boost capital, including $3B from Buffett

Warren Buffett is riding in to help bolster the image -- and balance sheet -- of another premier U.S. company damaged by the credit crisis.

General Electric Co., dogged by market worries about its finances, today said it would raise $15 billion in fresh capital -- including $3 billion by selling preferred stock to Buffett’s Berkshire Hathaway Inc.

For his trouble, Buffett will earn a 10% dividend yield on the preferred issue -- the same generous yield he got for a $5-billion investment in Goldman Sachs Group last week.

GE also plans to raise at least $12 billion by issuing new common shares.

In addition, Berkshire will get warrants to buy $3 billion of GE common stock with a strike price of $22.25 a share, exercisable at any time in the next five years.

Buffett, 78, stepped in last week to boost Goldman’s capital as concerns deepened on Wall Street that even powerful Goldman could be dragged down by the credit-market debacle.

GE’s shares dived as low as $23 early today, from $25.50 at Tuesday’s close, on fears that it might have trouble raising short-term financing as the credit crunch wears on. The company, which last year got half its operating earnings from its giant financial-services arm, GE Capital, denied it was facing funding issues.

With the announcement of Buffett’s investment and the stock sale, GE’s shares rebounded to $25.75 shortly before 11 a.m. PDT. But the stock pulled back again as investors focused on the dilution from the new stock sale. Just before noon, the shares were off 55 cents to $24.95. Year to date, the stock has fallen nearly 33%, compared with a 19% drop for the Dow Jones industrial average.

"This action does two things for GE investors," Chief Executive Jeffrey Immelt said in a statement. "First, it enhances our flexibility and allows us to execute on our liquidity plan even faster. Second, it gives us the opportunity to play offense in this market should conditions allow."

Buffett, in a statement, called GE "the symbol of American business to the world."

"I have been a friend and admirer of GE and its leaders for decades," he said. "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."

Photo: Warren Buffett. Credit: Paul White / Associated Press

Comments

[martscan]

Once again, Buffett reaps the highest fee ever garnered for the use of his name. Never has it been so true that it takes money to make money.