Summary
General Electric Company (GE) announced on September 13, 2011, its intention to redeem all preferred shares held by Berkshire Hathaway Inc. The total redemption amount is $3.3 billion, which incorporates a 10% redemption premium, in addition to any accrued and unpaid dividends up to the redemption date of October 17, 2011. This action signals a significant move by GE to unwind a strategic investment made during a period of financial market stress.
Key Highlights
- 1GE announced redemption of preferred shares held by Berkshire Hathaway Inc.
- 2The redemption amount is $3.3 billion.
- 3The redemption price includes a 10% premium.
- 4Accrued and unpaid dividends will also be paid.
- 5The redemption date is scheduled for October 17, 2011.
- 6This represents a material financial transaction for GE.
Frequently Asked Questions
While the filing does not explicitly state the reason, this action typically indicates that GE no longer requires the capital provided by the preferred shares, potentially due to improved financial standing or strategic shifts. It also allows GE to eliminate the associated dividend payments and the redemption premium.
The 10% premium is a contractual term for early redemption. It compensates Berkshire Hathaway for exiting the investment before its originally intended term, reflecting the terms agreed upon when the preferred shares were initially issued.
The total cash outflow will be $3.3 billion, plus any accrued and unpaid dividends from the issuance date to October 17, 2011. The exact amount of accrued dividends would depend on the dividend rate and the time elapsed since the last payment.
This redemption will reduce GE's cash reserves by $3.3 billion plus dividends. However, it will also eliminate the obligation to pay future dividends on these preferred shares, potentially improving future earnings per share and strengthening GE's balance sheet by reducing its outstanding preferred equity.