Buffett’s Berkshire pays $34B for railway
Investor’s choice is company’s biggest purchase yet, analysts say

BY THE ASSOCIATED PRESS Comments 0
Published: November 4, 2009

NEW YORK — Warren Buffett has made bets on railroads before, but now he’s all in. The billionaire investor’s Berkshire Hathaway Inc. on Tuesday agreed to buy Burlington Northern Santa Fe Corp., making a $34 billion bet on the future of the U.S. economy.

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BNSF Railway, the nation’s second-largest railroad, is the biggest hauler of food products like corn, and coal for electricity, making it an indicator of the country’s economic health. The railroad also ships a large amount of consumer goods — including items imported from Asia — from big Western ports like Los Angeles and Seattle.

Analysts say Buffett is planting both feet in an industry that is poised to grow as the economy gets back on solid ground. It would be the biggest acquisition ever for Berkshire Hathaway Inc.

Berkshire Hathaway already owns about 22 percent of Burlington Northern Santa Fe, and will pay $100 a share in cash and stock for the rest of the company. That was 31.5 percent premium on the company’s Monday closing price. The stock shot up more than 28 percent Tuesday, to $97.66 in afternoon trading.

Shareholders have the option to convert their stock for a cash payment of $100 per share or receive Berkshire Class A or Class B common stock. Up to 60 percent of the deal is cash and 40 percent is in stock.

"Berkshire’s $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry,” Buffett said in a statement.

"Most important of all, however, it’s an all-in wager on the economic future of the United States. I love these bets,” he said.

Berkshire’s board also approved a 50-for-1 split of its Class B common stock for holders of smaller amounts of BNSF shares who opt for a share exchange instead of cash. The Class B shares rose $60.35, or 1.85 percent, to $3325.35 on Tuesday.

Berkshire owns stock in two other major railroads — about 1 percent of the outstanding shares of Union Pacific Corp. and less than 1 percent of Norfolk Southern Corp., as of June 30. Buffett started investing in railroads in 2007.

He thinks railroads are a key economic indicator because of the goods they haul across the country. "They do it in a cost-effective way and extraordinarily environmentally friendly way,” he told CNBC. "I basically believe this country will prosper and you’ll have more people moving more goods 10 and 20 and 30 years from now, and the rails should benefit.”

Analysts say Buffett is looking for an investment that will reap rewards for many years into the future, and isn’t so concerned about immediate gains.