By Alistair Barr, MarketWatch
SAN FRANCISCO (MarketWatch) — General Electric Co. Chief Executive Jeff Immelt said Tuesday that the company plans to buy back preferred securities it sold to Warren Buffett’s Berkshire Hathaway Inc. at the height of the financial crisis.
Immelt also defended what he described as a powerful “trilogy” of rising dividends, stock buybacks and acquisitions as investors pushed the CEO to return more of GE’s spare capital to shareholders.
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GE /quotes/comstock/13*!ge/quotes/nls/ge (GE 17.44, -0.25, -1.41%) was hit hard by the 2008 financial crisis as the company’s financial-services business, GE Capital, suffered big loan losses. The company had to lean on a U.S. government-backed program to borrow more than $50 billion to meet funding needs.
GE also raised $8 billion in late 2008 by selling preferred stock to Berkshire Hathaway /quotes/comstock/13*!brk.a/quotes/nls/brk.a (BRK.A 119,397, -803.00, -0.67%) /quotes/comstock/13*!brk.b/quotes/nls/brk.b (BRK.B 79.68, -0.56, -0.70%) . Read about Buffett’s investments in 2008.
Since then, the global economy has recovered, thanks to trillions of dollars in government bailouts and stimuli. That’s helped many of GE’s businesses rebound — especially GE Capital.
Immelt said Tuesday that GE Capital may be able to pay dividends to the parent company by 2012. Add in higher free cash flow generated by GE’s other businesses and the company could have more than $30 billion in cash by 2013, he added.
This level of cash includes increased dividends and share buybacks in coming years, Immelt noted. It also includes the repurchase of Berkshire’s preferred securities which will happen no later than October 2011, the CEO said.
Dreaming about cash
Some GE investors on Tuesday expressed concern that GE might sit on a cash pile of more than $30 billion, or plow it into a lot of acquisitions that might be difficult to integrate.
“We’re all kind of on edge about where this cash is going to go,” one investor said during the question and answer part of GE’s presentation.
Immelt said the $30 billion projection for 2013 was only conceptual.
“We are not going to let it go to $30 billion,” he added, while noting that the idea was to let investors “dream about... all that cash.”
Still, the CEO said GE will continue to pursue acquisitions, as well as dividends and share buy backs.
“That trilogy is powerful,” Immelt added, while stressing that GE will focus on smaller, strategic, “bolt-on” acquisition with low execution risk.
If GE did a big, high-risk acquisition, “you could just punch me in the nose,” Immelt added.
GE shares rose 7 cents to close at $17.69 on Tuesday. The stock is up 17% so far this year, while the Standard & Poor’s 500 index has gained 11.3%.
Alistair Barr is a reporter for MarketWatch in San Francisco.Download the 1977 - 2009 Warren Buffett Letter's to Berkshire Hathaway Shareholders
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