Buffett Buys $3B of GE Preferred, Company Selling $12B of Common

From ClusterStock.com, Oct. 1, 2008:

General Electric Co (GE) just announced plans to raise $15 billion, with a little help from Warren Buffett. The company is selling $12 billion of common stock to the public and $3 billion of preferred to Berkshire Hathaway.

The old Oracle of Omaha has cut deal strikingly similar to the deal he cut with Goldman Sachs. Here he is getting perpetual preferred stock with a 10% dividend that is callable after three years at a 10% premium. He’s also snatching up warrants to purchase $3 billion of common stock at $22, which is a two dollar discount from where the stock is trading right now.

How closely is this investment in GE tied to Buffett’s faith in the bailout? GE is currently protected from short-selling under the SEC’s emergency ban, and GE may be eligible to sell assets to the Securitized Housing Investment Trust. He cited the bailout as a key to his investment in Goldman Sachs.

Fascinatingly, in an interview with Becky Quick on CNBC, Buffett said he was sold on this deal by investment bankers at Goldman Sachs. So those guys have talked Warren into parting with $8 billion of his cash in less than a week. Impressive.

CNBC describes Buffett’s investment in GE as “a very expensive advertising campaign.” To be sure, Buffett putting money into GE will make it attractive to many investors. But if you look at the great terms Buffett is demanding for his money, you have to wonder if other investors really should be buying into the common shares without the promised dividend and warrants.