Billionaire’s Berkshire Hathaway buys $5 billion in preferred stock
By Steve Gelsi, MarketWatch
NEW YORK (MarketWatch) — Bank of America Corp. rallied Thursday after billionaire Warren Buffett invested $5 billion in the financial conglomerate, with the billionaire saying it’s “a strong, well-led company.”
Making a big move up following the announcement, shares of Bank of America BAC +16.60% scored solid gains for their second straight day — a reversal following weeks of steep losses in the wake of the European sovereign debt crisis and rising jitters about a double-dip recession.
Shares of Bank of America rose 17.7% on Thursday morning.
“Bank of America is a strong, well-led company, and I called [CEO Brian Moynihan] to tell him I wanted to invest in it,” said Buffett, chairman and CEO of Berkshire Hathaway Inc. BRK.A +0.27% BRK.B +0.54% in a statement. “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them.
“Bank of America is focused on their customers and on serving them well. That’s what customers want, and that’s the company’s strategy.”
Terms call for Bank of America to sell 50,000 shares of cumulative perpetual preferred Stock with a liquidation value of $100,000 a share to Berkshire Hathaway in a private offering. Berkshire’s the holding company controlled by Buffett that owns financial services, insurance, building products and consumer goods companies.
The preferred stock has a dividend of 6% percent per annum, payable in equal quarterly installments, and is redeemable by the company at any time at a 5% premium.
In conjunction with this agreement, Berkshire Hathaway will also receive warrants to purchase 700 million shares of Bank of America common stock at an exercise price of $7.14 a share.
The aggregate purchase price to be received by Bank of America for the preferred stock and warrants is $5 billion in cash.
“We are building the best franchise in financial services and we have laid out a clear plan to deliver long-term shareholder value,” said Moynihan. “I remain confident that we have the capital and liquidity we need to run our business. At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy.”
