Buffett to pick $3 bn in GE’s $15 bn share sale

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New York, Oct 2: American giant General Electric (GE) will raise up to $15 billion through sale of shares, in a bid to increase its liquidity. Legendary investor Warren Buffett has agreed to buy GE stocks worth $3 billion.

The diversified conglomerate will be offering $12 billion worth of common shares and preferred stocks to the tune of $3 billion to Buffett’s Berkshire Hathaway in a private offering.

As the financial crisis rages on, Buffett’s decision to invest billions of dollars in the American entity will help boost sentiments on Wall Street. Earlier, the billionaire investor had invested $5 billion in the troubled investment bank Goldman Sachs.

For GE’s common stocks worth $12 billion open for the public, underwriters will have a 30-day option to purchase shares representing an additional 15% of the offering amount from the company to cover over allotments, if any.

The perpetual preferred stock to be bought by Buffett has a dividend of 10% and is callable after three years at a 10% premium.

In addition to this offering, Berkshire Hathaway will also receive warrants to purchase $3 billion of common stock with a strike price of $22.25 per share, which is exercisable at any time for a five-year term.

Commenting on the plan to raise more funds, GE chief executive Jeff Immelt said the action will do two things for the company’s investors.

“First, it enhances our flexibility and allows us to execute our liquidity plans even faster. Second, it gives us the opportunity to play offense in this market should conditions allow.

“In addition, we remain committed to the triple A rating and in the recent market volatility, we continue to successfully meet our commercial paper needs,” Immelt pointed out in a statement issued on Wednesday.

Meanwhile, Buffett, who has agreed to invest $3 billion, said that GE is the “symbol of American business to the world”.

“I have been a friend and admirer of GE and its leaders for decades. They have strong global brands and businesses with which I am quite familiar. I am confident that GE will continue to be successful in the years to come,” said the chairman and chief executive of Berkshire Hathaway.

Last week, the industrial conglomerate GE had revised its earnings guidance citing “unprecedented weakness and volatility” in the markets.

Moreover, GE chief executive Immelt in Wednesday’s statement said, “The economic environment remains volatile.”