Berkshire Hathaway Exercises Its GE Warrants

Berkshire Hathaway Exercises Its GE Warrants
By Mark Hirschey (Work of Mark Hirschey) [CC BY-SA 2.0], via Wikimedia Commons

During the financial crisis in 2008, Warren Buffett and Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) provided a lifeline to a number of blue-chip companies, including Goldman Sachs Group Inc (NYSE:GS), Bank of America Corp (NYSE:BAC) and General Electric Company (NYSE:GE). In a recent calculation by The Wall Street Journal, those investments have brought the Omaha, NE-based Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) over $10 billion in profits.

Berkshire Hathaway Exercises Its GE Warrants

Today saw General Electric delivering 10.7 million of its shares to the offices of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) and Buffett as the billionaire opted to exercise warrants valued at $260.7 million.

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Jeffrey Immelt, CEO of GE, has come a long way in righting the ship he inherited following the collapse of Lehman Brother’s, the loss of GE’s AAA credit rating, and the first dividend reduction in the company’s history since 1938. Two years ago, General Electric redeemed $3 billion in preferred stock that it had issued to Buffett as part of its needed capital injection that Mr. Buffett happily offered.

Buffett and Berkshire declined the opportunity

Buffett and General Electric Company (NYSE:GE) played around with the agreement governing the warrants in early 2013. The amendment allowed for a cashless transaction utilizing the average closing price of GE’s stock the 20 days prior to the exchange that took place yesterday. Buffett and Berkshire declined the opportunity to purchase $3 billion for shares at $22.25, while General Electric Company (NYSE:GE) was reducing shareholder dilution.

Since Mr. Buffett’s cash infusion, shares in GE have declined 4.5 percent since the day before Buffett’s investment was announced. Buffett’s lifeline was extended to General Electric on the last day of September 2008.

Is this a sign that Buffett is losing his touch?

When Buffett opted to invest in a handful of blue-chips, it was understood that the billionaire would taut his long-term positive outlook for each company. So far, only General Electric Company (NYSE:GE) has seen little to no gain from that optimism. Generally speaking, a positive long-term position is something you can almost take to the bank.

Is this a sign that Buffett is losing his touch? Doubtful. However, for many, now is the time to look at Berkshire Hathaway Inc. (NYSE:BRK.A) as a potential addition to any portfolio.

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While studying economics, Brendan found himself comfortably falling down the rabbit hole of restaurant work, ultimately opening a consulting business and working as a private wine buyer. On a whim, he moved to China, and in his first week following a triumphant pub quiz victory, he found himself bleeding on the floor based on his arrogance. The same man who put him there offered him a job lecturing for the University of Wales in various sister universities throughout the Middle Kingdom. While primarily lecturing in descriptive and comparative statistics, Brendan simultaneously earned an Msc in Banking and International Finance from the University of Wales-Bangor. He's presently doing something he hates, respecting French people. Well, two, his wife and her mother in the lovely town of Antigua, Guatemala. <i>To contact Brendan or give him an exclusive, please contact him at [email protected]</i>
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