Hartford: Shares of General Electric Co. fell nearly 10% on Thursday as the industrial and commercial conglomerate announced a share offering that was priced at a discount to the stock’s closing price the previous day.
The drop continued a slide that accelerated last month as investors fled companies such as GE that operate significant financial business.
GE priced 547.8 million shares at $22.25 each the same price GE extended to Warren Buffett, whose Berkshire Hathaway Inc. on Wednesday agreed to receive warrants to purchase $3 billion worth of common stock over the next five years. But the price for the $12.2 billion offering represents a 9% discount to GE’s Wednesday close of $24.50.
The stock closed on Thursday at $22.15, down $2.35, or 9.6%, GE, a bellwether of the US economy, was the biggest decliner in the Dow Jones industrial average, which fell 3.2%.
Fairfield-based GE’s share price has been battered for weeks amid concern about GE Capital, its finance arm, which does business in credit cards, commercial real estate and other financial services. Nearly half of GE’s profit comes from the finance unit. The stock rebounded on Wednesday after Berkshire Hathaway agreed to invest $3 billion in GE preferred shares.
Eric Boyce, portfolio manager at Hester Capital Management in Austin, Texas, said GE is determined to bring in cash and protect itself ahead of a vote on a $700 billion financial industry bailout bill set for Friday in the House of Representatives.
CEO Jeff Immelt said on Wednesday the deal gives GE the opportunity “to play offense in this market should conditions allow,” and he cited the importance of maintaining GE’s AAA rating.
Underwriters of GE’s public stock offering have the right to sell 82.17 million more shares, which would boost the value of the offering by $1.83 billion.
The newly issued shares will dilute the value of existing GE shares. Oppenheimer & Co. analyst Christopher Glynn reduced his earnings estimates on GE, based on the significant increase to shares outstanding.
Glynn said in a note to investors that he trimmed his fourth-quarter earnings per share estimate to 56 cents from 59 cents and to $1.99 from $2.02 for the year. Analysts surveyed by Thomson Reuters expect, on average, per-share earnings for the fourth quarter of 59 cents and $2.03 for the year.
GE, which makes everything from light bulbs to jet engines and owns NBC Universal, has cut its earnings forecast twice since April due to problems with GE Capital. It has also announced a reorganization and unveiled plans to spin off or sell its famed appliances unit.
Despite cutting his profit forecast, Glynn said GE’s decision to sell shares improves liquidity and allays concerns over GE’s credit rating. “While Mr. Buffett’s deal does not scream that GE’s shares are cheap...the endorsement is a net positive in our view,” he said.
Glynn said GE accesses between $10 billion and $15 billion of commercial paper a day and, though it does not claim to have difficulties obtaining commercial paper, “thinks it prudent to avoid reliance on this funding source in the current environment.”