Well, GE raised the additional $12 billion it planned to raise after Warren Buffett injected $3 billion yesterday. But it had to price the stock at a gut-wrenching 9% discount to the current price, at $22.25. Demand was so weak, in fact, that the deal was priced below Warren Buffett’s option on an additional $3 billion, which has a strike price of $22.50.
This is not a reassuring vote of confidence for a company that is:
- One of the most respected enterprises on the planet.
- Insisting that its business is still rock-solid
- Just got blessed by Warren Buffett.
And it is also shockingly expensive: 7% dilution at the lowest stock price in more than a decade, after the company spent $27 billion to buy back stock at an average price of $36 over the past three years. That’s called shareholder value destruction.
Companies don’t do deals like this unless they absolutely have to. So let’s hope GE doesn’t further damage its credibility by suggesting that it is just “taking advantage of strong investor demand to strengthen its capital position” or some such nonsense.