Wow, Was That GE Warren Buffett Deal Expensive

A few months ago, GE’s CEO Jeff Immelt did a world-wide-webcast to investors explaining why GE’s stock was undervalued.  A few weeks after that, GE blew its quarter.  Two weeks ago, GE sent out an investor relations blastmail explaining why GE Capital wasn’t like all those boneheaded Wall Street firms. A few days later, GE announced a big writedown at GE Capital, stopped buying back its stock, and cut its guidance for the quarter and year.

And now, Jeff & Co. have announced a shockingly expensive capital infusion:

  • $3 billion of preferred stock with a 10% coupon
  • Warrants at $22.50 on another $3 billion of common stock
  • A forthcoming $12 billion common equity financing.

Add all that up, and you have about 7% equity dilution…at GE’s lowest stock price in 10 years.  As Justin Fisher notes below, this comes after GE repurchased $27 billion worth of stock at an average price of $36 a share in the past three years.

Better than going bankrupt? Hell, yes.  Better than Lehman Brothers and AIG? You’d better believe it. Smart? Let’s hope so.

But expensive? Painfully.

See Also:
Warren Buffett Bails Out GE
In Warren Buffett We Trust

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