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Billionaire Buffett Gives GE Seal of Approval

Warren Buffett-led Berkshire Hathaway buys $3B in General Electric preferred stock. 10/01/2008 12:25:00 PM Eastern

The embattled parent company of NBC Universal got an endorsement Wednesday from Wall Street’s savviest stock investor, as Warren Buffett agreed to buy $3 billion worth of General Electric preferred stock.

Warren Buffett

GE’s share price has underperformed for years, prompting analysts to suggest breaking up the sprawling company.

The decision by Buffett-led Berkshire Hathaway to infuse GE with $3 billion signals confidence in GE CEO Jeff Immelt and his strategy of moderating downsizing, thus keeping diverse businesses ranging from finance to broadcasting to jet engines to movies.

GE is trying to sell its consumer-appliances business, and it issued a profit warning recently.

GE reportedly wants to raise another $12 billion via sale of common stock.

The GE preferred stock Berkshire Hathaway gets pays a cash dividend of 10% and is callable at a 10% premium after three years. Berkshire also received warrants to buy $3 billion worth of GE common shares at $22.25 each over five years. One year ago, GE traded at $42.02 per share, but it trended down to the mid $20s recently.

Earlier this year, Forbes magazine estimated that Buffett is the world’s richest person with a personal net worth of $62 billion, mostly accumulated by buying in stock-market dips and out-of-favor companies, in what is called “value investing.”

Berkshire Hathaway recently made a similar $5 billion preferred-stock buy in investment house Goldman Sachs in another round of bargain shopping. This purchase soothed Wall Street investors who figured that if Buffett is buying investment companies, then they are not all going to collapse in the current credit crunch.

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