Buffett takes ride on the BNSF railroad, buys Burlington Northern outright

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."

That is one heck of a bet. And it gives every indication that, no matter what Buffett says on TV or in press interviews, he believes the U.S. economy is about to roar back. Large railroads transport everything from cars to coal to steel and widgets. They are a nearly perfect proxy for the overall economic health of the country.

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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