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USG Shares Soar On Warren Buffett's "Expression of Confidence"

Warren Buffett's Berkshire Hathaway has agreed to make a new $300 million investment in USG Corporation, sending shares soaring for the big Chicago-based building materials maker. They've been hit very hard by the housing market's severe downturn.

Around lunchtime on Wall Street, USG is up almost 22 percent to $6.89 a share. Current price:

As he did with General Electric and Goldman Sachs, Buffett negotiated an impressive return for his money.

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Berkshire will get "contingent convertible senior notes" with an initial interest rate of 10 percent a year.

If USG shareholders approve, the notes will be convertible into USG common stock at the price of $11.40 a share. While that's double yesterday's closing price, USG shares were trading between $30 and $40 earlier this year.

If shareholders don't give their OK, the interest rate on the notes jumps to 20 percent a year.

Berkshire is already USG's biggest shareholder with 17.1 million shares worth about $118 million at the moment.

In its news release announcing the deal, USG says Berkshire will vote those shares in favor of the proposed conversion at a special shareholders meeting to be held in the first quarter of next year.

Canada's Fairfax Financial Holdings is buying another $100 million in notes on the same terms.

USG CEO William Foote is quoted in the release as saying, "We are gratified by the expression of confidence in USG Corporation by two premier financial institutions. We consider these substantial investments by Berkshire Hathaway and Fairfax as validation of our business strategy and the company's long-term prospects. This transaction provides USG with long-term capital that significantly improves our financial flexibility as we manage through the steep recession in our primary markets."

Current Berkshire stock prices:

Class A:

Class B:

General Electric:

Goldman Sachs:

Questions? Comments? Email me at buffettwatch@cnbc.com