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As in the Goldman deal, Berkshire (NYSE: BRK) will be entitled to a 10% dividend on the newly issued $3 billion of perpetual preferred shares, which are callable by GE (NYSE: GE | Quote | Chart | News | PowerRating) after three years at a 10% premium. Berkshire also will receive warrants to purchase $3 billion of common stock at any point in the next five years at a strike price of $22.25 a share.
Among the largest corporate holding companies in the world, Fairfield, Conn.-based GE announced the deal in conjunction with plans to raise $12 billion through a new public common stock offering, set to be priced prior to Oct. 2 opening of U.S. markets.
News of the investment by Berkshire -- parent of insurance and reinsurance units such as Geico, General Re and National Indemnity -- at least temporarily reversed a steep slide in GE shares Oct. 1, as investors showed concern that stressed debt markets could impair the availability of commercial paper funding to the company's GE Capital unit.
In a statement, Berkshire Chairman and Chief Executive Officer Warren Buffett called GE "the symbol of American business to the world" and said he was "confident that GE will continue to be successful in the years to come."
Once a major player in the global insurance market, GE began to exit the business in 2003, with the divestitures of its Financial Guaranty Insurance Co. and Tokyo-based Edison Life businesses. The company's former life and mortgage insurance operations were spun off in May 2004 with the initial public offering of Genworth Financial.
Berkshire itself bought GE's Medical Protective Corp. liability unit in May 2005, and in November of that year, the company sold substantially all of its remaining insurance and reinsurance operations to Swiss Re Group for $6.8 billion.
The company still owns the life/health subsidiaries Union Fidelity Life Insurance Co., Employers Reassurance Corp. and Heritage Life Insurance Co. All three are essentially in run-off.
Most members of the Berkshire Hathaway Insurance Group currently have Best's Financial Strength Ratings of A++ (Superior).
On the afternoon of Oct. 1, Berkshire's A shares were trading at $136,000, up 4.13% from the prior close. Shares of GE were down 2.9% to $24.75.
(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)
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