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“General Electric, of course, is a very complicated and interesting subject. It is interesting that a company so well-regarded for acumen, education, technology, etc. etc. would end up so ill-regarded as the result of a long period of subpar performance,” Munger, 94, said at the Daily Journal’s (DJCO) annual meeting.
He continued: “People didn’t expect it. And of course, people are saying what caused the failure of performance at General Electric. My answer would be partly, ‘life is hard.’ And that’s part of it.”
The other part is the system at General Electric of rotating executives through different assignments as if they were army officers building up a resume to see if they would be promoted to generals.
“I don’t think that works so well. I would say to some extent what has happened.”
He added that they should do a “little less” of the style used by the army and do more of a Berkshire Hathaway-style.
In 2017, Yahoo Finance readers voted GE as the “worst” company. For Berkshire, the investment worked out.
“We made an investment in GE in the middle of a panic because it was a decent buy. And, it worked out for us fine.”
Berkshire Hathaway gave the giant conglomerate a big vote of confidence as concerns around its GE Capital unit grew during the 2008 crisis.
In October 2008, GE agreed to sell $3 billion of preferred stock to Berkshire Hathaway, offering a 10% dividend, or $300 million per year. Like the Goldman deal, the preferred shares were redeemable at any time. As part of the agreement, Berkshire also got the right to buy $3 billion of common stock with a strike price of $22.25 per share.
On October 17, 2011, GE redeemed all of its preferred shares from Berkshire for $3.3 billion, which includes the 10% premium.
In January 2013, GE and Berkshire amended its agreement for exercising the warrants so that Berkshire would receive a “net share settlement” equal to the difference between average price of GE’s common stock on the 20 days preceding the October 16, 2013 exercise date and the $22.25 per share strike price. That October, Buffett exercised all of its warrants to purchase 10.7 million shares of GE’s common stock, a position valued at $264.76 million based on the closing price on the date the shares were delivered.
Berkshire sold its entire 10.58 million shares in the second quarter of 2017.
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.