Wednesday, October 1, 2008

Buffett Invests in GE Preferred

Warren Buffett has struck a deal for GE preferred with terms very similar to his investment in Goldman Sachs. Buffett will invest $3 billion in return for an annual 10% dividend and warrants to purchase an additional $3 billion in common at $22.25. The preferred is callable after three years at a 10% premium. Once again Mr. Buffett has received extremely favorable terms for his investment. The warrants are worth at least $1 billion and Mr. Buffett is getting them for free. GE, who has adamantly denied having liquidity problems and a need for new capital, is also planning to issue an additional $12 billion in common stock. Naturally, it's wise to conduct any dilutive capital raising before the SEC short-sale ban expires. Should Buffett's investment be viewed as a sign of confidence? To a certain extent, yes, but that doesn't mean purchasing the common stock is such a great idea. Personally, I'd like a 10% dividend and a free option to go with any investment, so I'll be sitting this round out. You can read further thoughts on GE below.

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