Industry News

Warren Buffett Buys BNSF

November 3, 2009 | 09:20 a.m. CST

Warren Buffett's Berkshire Hathaway Inc. will pay $26 billion to buy out railroad Burlington Northern Santa Fe Corp. in what the billionaire investor called a bet on the U.S. economy, Reuters reports.

The deal, Buffett's biggest-ever acquisition, is priced at a premium of 31.5 percent over BNSF's closing stock price on Monday and values the railroad at $34 billion. "It's an all-in wager on the economic future of the United States," Buffett said in a statement, adding that railroads are key to the U.S. economy and will benefit as recovery takes hold. "I love these bets."

Berkshire Hathaway will pay $100 per share in cash and stock for the 77.4 percent of BNSF shares it does not already own. Berkshire will also assume $10 billion of BNSF debt. The deal is expected to close in the first quarter of 2010.

"For the market, it can be seen as a sign of confidence (about the economy)," said Peter Boockvar, equity strategist at Miller Tabak + Co in New York, adding it was logical for Buffett to buy the rest of the railroad. "Berkshire is seeing way past some impending economic recovery signs now and looking into the future."

In a phone interview, Buffett told CNBC that he's unlikely to buy Union Pacific, another railroad company he has invested in previously.

"[Burlington Northern] does it in a very cost-effective way and they do it in an extraordinarily environmentally friendly way," Buffett told CNBC. "BNSF last year moved on average a ton of goods 471 miles on one gallon of diesel and it releases far fewer pollutants into the atmosphere. It saves enormously on energy consumption and it diminishes highway congestion."

Additionally, the Berkshire board approved a 50-for-1 split of its class B shares. "I'm not big on stock splits, but by having this split, it enables anybody with as little as one share of BNSF to opt for the tax-free exchange," Buffett told CNBC. "So the small shareholder can have the exactly the same availability that otherwise would only have been available to a big shareholder."