Berkshire Hathaway Inc.’s $3 billion bet on General Electric Co. during the 2008 financial crisis is proving less profitable than similar wagers by Chairman Warren Buffett on Goldman Sachs Group Inc. and Bank of America Corp.
Berkshire is poised to get about $260 million in GE shares through warrants Buffett received as part of a capital injection into Fairfield, Connecticut-based GE. Goldman Sachs Group Inc. this month turned over a $2.1 billion stake to Berkshire tied to a similar bet. The GE contract expires tomorrow.
Buffett buoyed some of the biggest U.S. corporations as credit markets froze in 2008, helping GE and Goldman Sachs after the collapse of Lehman Brothers Holdings Inc. sparked the worst economic slump since the Great Depression. If Buffett were to exercise warrants received as part of a 2011 investment in Bank of America, he could buy about $10 billion of shares for $5 billion.
“Buffett stepped in when everything was on fire with a way to keep from getting hot, and it has really paid off,” Nick Heymann, a New York-based analyst at William Blair & Co. who has a market-perform rating on GE, said in a telephone interview.
Berkshire will probably get more than 10 million shares of GE, according to an agreement that uses the average closing price during a period of 20 trading days preceding the exchange. The amount may change based on share fluctuations before the expiration.
The billionaire and GE amended the agreement so Berkshire will exercise warrants through a cashless transaction, passing on a chance to spend $3 billion for shares at below-market prices. The revised agreement reduced the dilution for GE.
GE fell 0.8 percent to $24.19 at the close in New York. The shares have declined 5.1 percent since Sept. 30, 2008, the day before the capital injection was announced. Goldman Sachs, which got a $5 billion investment from Buffett in 2008, advanced 23 percent in that span to $157.63.
Berkshire received the GE warrants along with $3 billion in preferred stock in exchange for an investment that helped Chief Executive Officer Jeffrey Immelt stabilize the company as credit losses mounted at the finance unit. The CEO’s efforts to shrink GE Capital and boost earnings from industrial units helped the stock climb from a close of $6.66 on March 5, 2009.
GE paid $3.3 billion in October 2011 to redeem Berkshire’s preferred stock, which had paid a 10 percent annual dividend. Seth Martin, a spokesman for GE, declined to comment on the warrants.
“It was very opportunistic” for Berkshire, said John Fox, director of research at Fenimore Asset Management Inc. in Cobleskill, New York, which oversees about $1.5 billion, including Berkshire shares. “You had a period of distress in the markets and low prices, and they put a lot of money to work.”
Bank of America agreed to give Buffett a preferred stake and warrants in exchange for a $5 billion investment in 2011. The 10-year contract allows Berkshire to buy 700 million shares at $7.14 apiece. The bank closed at $14.35 yesterday.