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Buffett's GE Warrants Quickly Trade Out of the Money

by: Bespoke Investment Group October 02, 2008 | about stocks: BRK.A / BRK.B / GE    

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Who said Warren Buffett only gets sweetheart deals?  As part of yesterday's announced investment in GE, Berkshire Hathaway (BRK.A) received warrants to buy $3 bln worth of stock at a price of $22.25. 

This was similar to the warrants BRK.A received to buy Goldman Sachs (GS) at $115.  The only difference between the two warrants is that while the GS warrants have for the most part traded in the money, the GE warrants are already trading in the red, less than one day after the BRK.A announcement. 

Yesterday we speculated that Buffett thought less of GE's creditworthiness than he did of Goldman's, and judging by the early trading in GE stock, he appears to have been right.

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This article has 11 comments:

  •  
    Oct 02 11:02 AM
    Let us assume for discussion’s sake that a Plunge Protection Team actually exists as many believe factual. Reportedly, Hammering Hank leads this group of covert operatives in stabilizing markets. So far so good!

    Now, if Hank wished an unpopular Bail-Out Bill’s passage, would Hank and his friends not simply reverse the PPT’s function by either not participating or selling into a decline? The argument then arises that by selling shares, Hank would harm his bottom line via losses. Any losses could, however, be eliminated through buy backs at even more attractive prices!

    Unless we are a rebirth of Nostradamus, certainty is nothing more than the musings of fools on CNBC. Columbus took a chance and perhaps we should as well. Buying reasonably solid stocks at or near single digit PE’s more likely than not will make us the subject of great envy at the 2009 office holiday party!!!!
    Reply
  •  
    Oct 02 11:52 AM
    Back last Thursday (Sept 25) during a 'softball" interview with Immelt and his CNBC shills, GE stock popped from 23.50 to over 26 closing at 25.68. According to Immelt, even in a difficult world all was well for General Electric. Maybe he was hoping that Buffett was watching.

    www.cnbc.com/id/158402...
    Reply
  •  
    Oct 02 01:24 PM
    Disclaimer: closed course, professional driver.
    Even at that price I think Buffet can easily afford to throw yet another 3b knowing that he is getting a great deal long term. Remember: cash is king right now and you dont have time absolute bottom in order to get a great deal.
    Reply
  •  
    Oct 02 01:53 PM
    Nedko you just wiped out. The sinking of the GE numbers indicates that the warrants could have been better priced, and that is an error in timing of the buy-in / loan by BRK and Warren.

    IS there anything fundamentally wrong at GE? Yes, it is the unhappy conjunction of a cash shortage with a sales decline of monumental proportions. We lawyers call that a brush with bankruptcy. Remember, if GE gets tighter, Warren has the unpleasent task of deciding to cut and run, or buy down. He is a big boy, he kept is bet small. I hold his stock.
    Reply
  •  
    Oct 02 02:50 PM
    Error? Dude, he got 10% pp. You find me somewhere to get 10% pp, and I will sign on the line all day long.
    Reply
  •  
    Oct 02 03:29 PM
    A few words for Buffett... No cuts in the soup kitchen line. AND I mean no cuts! I gotta felling that Omaha Steaks is going to out perform your sorry butt...

    Remember Buffett, It's always Midnight somewhere...
    Reply
  •  
    Oct 02 03:33 PM
    Warren Buffet, BTW, Don't you think you'll get you money's worth in a place like Madison Avenue where they create demand for things we don't want or need?
    Reply
  •  
    Oct 02 10:04 PM
    Everyone wants to judge WB based on the last 20 minutes. This is a multi-year, or even permanent investment for him. It would be both reasonable and ethical for him to have his warrants priced at the same price as the secondary offering that was pending (and also recent market lows in both cases). If Jack Welch was running Treasury, GE would be the stronger short-term bet right now. Let's see which deal looks smarter in three years instead of three hours.
    Reply
  •  
    Oct 03 12:37 AM
    Nice to be Warren, I could never receive a 10% dividend guaranteed. none the less, i still bought at 22.15 :)
    Reply
  •  
    Oct 03 01:00 PM
    duh, he (WB) is not day trading these warrants. I am sure he is only worried about them near expiry.
    Reply
  •  
    Oct 03 10:22 PM
    All this means is 'don't jump in just because Buffett is buying'... He has a longer timeframe and considerably more money than any of us. Do yourself a favor.... Buy before he does nd sell immediately upon his entry... Just kidding ... jegan ;-)
    Reply
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