Warren Buffett's Berkshire Hathaway Inc. is investing $3 billion in General Electric Co., a huge vote of confidence for an iconic American company battered by the credit crisis.
For the second time in just over a week, Berkshire Hathaway has moved to shore up a company long known for its ironclad fiscal health.
Buffett bought a $5 billion stake in Goldman Sachs last week after the famed investment bank's shares had slumped. Investors feared Goldman could face similar funding squeezes as Bear Stearns and Lehman Brothers.
Buffett on Thursday praised Fairfield, Conn.-based GE, which makes everything from light bulks to jet engines and owns NBC television.
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“GE is the symbol of American business to the world,” Berkshire Hathaway Chairman and CEO Warren Buffett said “They have strong global brands and businesses. … I am confident that GE will continue to be successful in the years to come.”
But the conglomerates' shares have dropped 42 percent in the past year, badly hurt by its financing business, which accounts for nearly half its profit, and has taken a big hit from falling consumer confidence, tighter credit and the collapse of housing markets.
Analysts said Buffett's endorsement will mean as much or even more than Berkshire's cash.
“He's a smart guy and he wouldn't get involved if he doesn't think it's a great company. It's a nice endorsement. He doesn't make too many mistakes,” said analyst Mike McGarr of Becker Capital in Portland, Ore.
Berkshire, based in Omaha, Neb., is buying $3 billion of preferred shares of GE, which carry a 10 percent dividend. The terms are similar to those Buffett struck with Goldman Sachs. Berkshire also has the option to buy $3 billion worth of GE common shares for $22.25 each at any time over five years. That was below GE's closing share price of $24.50 on Thursday.
GE also plans to sell at least $12 billion worth of common stock to the public.
Like the Goldman Sachs deal, both sides will benefit, said Morningstar analyst Justin Fuller.
“I think they're kind of a win-win situation: great deals for Berkshire and good deals for the other companies,” Fuller said. “I think in a lot of ways, Goldman and certainly GE, they're, in effect, buying Buffett's backing.”
The value of stock sold to the public and Buffett totals $15 billion, enhancing GE's flexibility and giving the company “the opportunity to play offense in this market should conditions allow,” Immelt said.