Berkshire Hathaway, headed up by none other than Warren Buffett, just recently received 10.7 million shares of General Electric this past Thursday. The shares are worth $260.6 million based on last Wednesday’s closing price. We learn this according to a filing that took place with the SEC.
At the height of the credit crisis back in 2008, Berkshire Hathaway loaned General Electric $3 billion. This was a massive vote of confidence for the business. This fund gave Berkshire Hathaway five-year warrants which allowed them to buy around 135 million shares of General Electric at $22.25 per share.
Back in February 2013, General Electric agreed quietly to modify the deal. They chose to make it a “net share settlement” instead.
Instead of having Berkshire Hathaway spend $3 billion in order to buy General Electric stock, the company decided to hand Berkshire Hathaway stock equivalent to the amount that the company would have realized when exercising the warrants. They then immediately settled the shares.
It’s obviously a much smaller stake, but Berkshire Hathaway is not required to put out any cash to acquire it.
And that’s exactly what happened this past Wednesday. GE was trading at around $24 per share, which means that it was around 8% above the strike price. And the profit worked out to be about $260 million.
This payday is relatively small when you compare it to the warrants Berkshire Hathaway received from Bank of America and investment firm Goldman Sachs.
The Goldman Sachs warrants expired earlier in the month and Berkshire Hathaway received stock that was worth over $2 billion in the net share settlement. In all, Goldman Sachs stock price actually rose 43% above the agreed strike price, plus the warrants were actually for $5 billion versus the General Electric amount of $3 billion.
The Bank of America warrants from the $5 billion loan in 2011 might turn out to be a lot more profitable. If they were to be exercised today, they would currently be worth $5.2 billion.
The Bank of America warrants do not expire until 2021, so you shouldn’t expect to see a “net share settlement” anytime soon.