When Berkshire loaned $3 billion to GE in a massive vote of confidence at the height of the 2008 credit crisis, the fund got five-year warrants giving it the right to buy almost 135 million shares of GE at $22.25 each.
Then in February of this year, GE quietly revealed an agreement to modify the deal by making it a "net share settlement."
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Rather than have Berkshire spend $3 billion to buy the stock and then sell or hold onto it, GE agreed to give Berkshire stock that's worth as much as Berkshire would have realized by exercising the warrants and then immediately selling the shares.
It's a smaller stake, but Berkshire doesn't have to put out any cash for it.
That's what happened Wednesday. With GE trading at about $24, the stock is just about 8 percent above the strike price, working out to a profit, paid in shares, of approximately $260 million.
It's a relatively small payday compared with similar warrants Berkshire received as part of its investments in Goldman Sachs and Bank of America.
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Earlier this month, when Goldman's warrants expired , Berkshire received stock worth more than $2 billion in that net share settlement. The investment bank's stock had soared 43 percent above the strike price, and the warrants were for $5 billion worth, versus just $3 billion for GE.
Berkshire's Bank of America warrants from its 2011 $5 billion loan deal could turn out to be even more profitable-and would be worth $5.2 billion if they were exercised now.
But don't look for a similar "net share settlement" of those BofA warrants anytime soon. They don't expire until 2021.
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image: © MarkGregory007