Buffett takes ride on the BNSF railroad, buys Burlington Northern outright
Filed under: Company News, Berkshire Hathaway
Warren Buffett likes railroad stocks. One of his largest positions has been in Burlington Northern Santa Fe (BNI). It turns out that he likes the company so much that his Berkshire Hathaway (BRK.A) will buy the 77.4 percent of Burlington Northern that it does not already own. And at a price of $100 a share, it will pay a huge premium. Burlington Northern shares traded at $76.07 at the end of trading Monday.
Berkshire said that based on the number of outstanding BNI shares (including shares currently owned by Berkshire) on Monday, the transaction is valued at approximately $44 billion, including $10 billion of outstanding Burlington Northern debt, making it the largest acquisition in Berkshire Hathaway history. Buffett explained, "Our country's future prosperity depends on its having an efficient and well-maintained rail system."
In May of last year, Burlington Northern shares reached a multiyear high of $113. From that standpoint, Buffett could say he is getting a bit of a deal. However, if the economy hits a double dip, Berkshire could lose billions of dollars. With a poor track record in 2008, Buffett can say that he has done much better this year. His railroad investment is big enough to make or break 2010 results for his holding company.
(Berkshire Hathaway also announced it would split its Class B shares 50 for 1.)
Douglas A. McIntyre is an editor at 24/7 Wall St.
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Reader Comments (Page 1 of 2)
11-03-2009 @ 10:16AM
terry said...
....and I just sold some last week for $85.
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11-03-2009 @ 10:14AM
sgentilejr said...
Mr. Buffet has unfortunately lost sight of reality. Our nation's economic decline will not end, instead the economy will continue to deteriorate until at least the year 2020. The 40 plus million Baby Boomers that pushed our economy forward for the past 50+ years, will now take our economy down very fast as the related social program costs skyrocket beyond all prior estimates. At the same time that the federal spending increases,, income tax revenue will continue to decline. Unemployed people, closed factories will result in less and less need for rail freight services as time passes.
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11-03-2009 @ 10:53AM
htc said...
sgentilejr, I think you are dead wrong. You are laboring under the illusion that railroads move the majority of finished goods in this country and that is where they derive their profit from, neither of which is true. Railroads move commodities more than anything else, mostly coal and grain. The demand for energy mostly rises and the demand for grain never goes down so that traffic will only increase if anything. Railroads move most of the bulk chemicals in the U.S. and ethanol train frequency will rise as more of it is used in fuel. While railroads do not move the majority of finished goods, they do move a significant portion of those goods in intermodal trains and as fuel becomes costlier, I can see a lot of shipments that are going by truck to be diverted to railroads. Buffet is correct in thinking that railroads are a solid investment and he is even more correct in believing that BNSF is a great investment. You obviously don't have any knowledge about the transportation industry so maybe you should consider commenting on things that you do know about.
11-03-2009 @ 11:46AM
ExUtahn said...
sgentilejr, what does your porfolio look like ? I'd bet you aren't worth one of berkshire's b stocks. crawl back into your pessimistic hole.....quick ! you don't want to see what's next !!!
11-03-2009 @ 2:21PM
ed baggett said...
you've been listening to that bone head Limbaugh. Or Glen Beck.
11-03-2009 @ 2:45PM
300M said...
Only have one comment to your post----BULLPUCKY !!!!!!
11-03-2009 @ 3:09PM
curly said...
Let's see....Mr. Buffett has a net worth somewhere north of 70 Billion bucks...and you are worth....... ??? And you claim he's out of touch with reality? Methinks you are the one who lives in the world of fairies and munchkins. Where do you get your "expertise"? From that bloated load, Limbaugh or the motor mouth, Beck?
11-04-2009 @ 10:02AM
akorozco said...
There's also stimulus dollars set aside for high-speed rail... Buffett's thinking FAR ahead on this massive deal. http://www.newsy.com/videos/warren_buffett_bets_on_the_u_s_economy
11-03-2009 @ 10:51AM
Paul Jacobs said...
Question related to the BNSF acquisition: Are retirees' company-paid monthly payments guarenteed?
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11-03-2009 @ 12:34PM
Daryl said...
Betting on America for the long term I agree with...I just am not sure about the next year and few months....Only hope for Pres. Obama and our economies quick return to glory is for us to take Obama down the Clinton route...In 2010 a Republican congress that is what worked for Clinton and America...Until that mid term Clinton wasn't so hot either, I personally still don't think he was that good of a president (Clinton did open the flood gates from mexico), but that mix worked ok for our economy other than that..Has to be better than where we are today, where we are heading(skyrocketing unemployment) and where our dollar is heading!
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11-03-2009 @ 1:22PM
mac 8 said...
Take a ride on the Reading, pass GO and collect $200. Actually someone should but the NS and get back into railroading again, their cut and trim tactics are not saving fuel or getting trucks off I-95 as predicted, instead they added about 15% more trucks on the I-95 corridor.
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11-03-2009 @ 1:30PM
Tech said...
Not a smart move short term but maybe long term? The economy is doing worse and next year is scheduled to be even worse than this one. He should have bought at the March low not now at a high point. He lost at least ten billion last year alone so he's getting old. Sure rail is the cheapest way to move the most product but today that means mostly coal, grains, ethanol etc. What they should do is buy some Congressman and push high speed rail! Then they will have to upgrade our tracks but who will finance that? The Communist Chinese? As long as the US is losing money by the billions daily the dollar will fall and any dollar based investment is dangerous unless you think US stocks will keep pace with inflation of the money supply and debt.(I don't) What I like best now is gold and silver then you take them when the dollar bottoms or dies and buy your US stocks at the low. With Obamanation in there turning us into a Communist/fascist nightmare and maunufacturing having fled to Chindia plus the added drain of an endless fraud "war on terror" costing us a trillion per year? Americans are schmucks but at least Buffet bought 350 million of China's BYD-they have the best Lithium FE battery technolgy and hybrid and electric cars and plan to be the number one car company by 2030. Only thing that will stop them is WW3 which is a distinct possiblity. The USA has way over 100 plus trillion in debt and unfunded liablties-no-way are we going to pay that off and fund and endless war, healthcare, infrastructure, small business, or anything but the destruction of the country-which I believe the backers of Obama, Bush, Cheney, and Washington want-weird fascist/communist nothingness to merge us into their New World Order BS. Oh, and global warming is crap-Goldman Sachs and Gore with the British Royals, Rockefellers, Rothchild's to tax the heck out of everyone on earth in the global government baloney. I own gold and silver and like CEF, Swiss gold and silver vaults, and physical metals and nothing from the propganda put out by the media bimbos. Warren, sell and buy gold and silver, then buy BNI. F1 racing is the ultimate!!!!! At least I can follow that while the USA self destructs. Alonso is driving back at Ferrari. Nascar is a joke.
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11-03-2009 @ 1:29PM
john E said...
Even if the economy continues to tank, rail will be golden for moving freight. Especially when gas goes up again and trucking becomes less appealing.
I would like to see an end to the professional polititian and have citizens take turns serving.
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11-03-2009 @ 1:59PM
Gap said...
Mr. Buffet is a true American.Only we, the American people can get our economy back on track.We need to buy more American products and keep our people working.We need more like Mr. Buffet to turn this nation around.American people have built this Country and we can save the United States of America!
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11-03-2009 @ 2:17PM
Pat said...
Smart move by Buffet, trains will always be the bedrock transportation system of our future. The government will be pushing billions to the transportation systems especially trains in the next few years. Watch for upgrading the train system to match what Europe and Japan have done. No one is smarter than Buffet in reading the U.S. economic tea leaves. The road system in the U.S. is falling apart, bridges very close to crumbling and fuel costs killing truckers.
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11-03-2009 @ 2:47PM
Tech said...
The other angle is this is a BIG bet on coal. Most of what that company transports is coal and we have the largest reserves of coal on earth. Coal supplies most of our electricity and maybe with the new clean coal technology we can make it happen. Also you can convert coal to oil however pipelines carry most of that. As he's in with Obama I'd say it's going to be a coal future-not my choice though, geothermal is much cleaner and lasts a long time. You can use drilling technology and pump water down and get steam or hot water forever without any pollution or mercury. Drive your generators from the hot water or steam 24/7 and no pollution. Well they killed that mostly and the Jay Rockefeller is sitting in the coal state of West Virginia and they just had the big coal sequestering demonstration with Obama. We do have enough natural gas to last about 100 years too with the new drilling techniques and that's a lot cleaner. But coal will last about 650 years. T Boone lost out on the wind farms-the Chinese picked that one up. Solar was killed by Bush to "study the harmful effects of sunlight", and meanwhile we can use the Canadian oil sands and grind up Alberta and pipe it to Cushing, Oklahoma.
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11-03-2009 @ 3:01PM
rrretiree said...
I believe that Buffett knows more than the casual investor does about our economy. The BNSF railroad at one time was probably one of America's largest land owner, with the landgrants given the NP railroad in the mid 1800's. Even by breaking up the holding company I'm sure the value of all assets are more valuable than the $100/share Buffett is paying. What a wise investment in my opinion..
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11-03-2009 @ 8:47PM
Shelly said...
Looking to the future I'd say it's not trains that will move products and people. I think it will be horse and Buggy.
It was just a few months ago Warren was saying he thought the economy was falling off a cliff. Now he thinks the economy will be great despite the fact all the statistics prove the opposite. Unemployment is higher. The deficit is worse. Health care is a mess and getting worse.
Well, he now owns a railroad. Good for him I guess.. lol.
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11-03-2009 @ 4:59PM
kevin said...
Hope he lives long enough to see it pan out.
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11-03-2009 @ 5:16PM
DD said...
Check out the link below. If it were not for the Govt bailouts, Buffett's stock would have been wiped out totally. He so desperately needed the bailouts to survive!!!
http://blogs.reuters.com/rolfe-winkler/2009/08/04/buffetts-betrayal/
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