Tuesday November 3, 08:07 PM
Warren Buffett's Berkshire to buy railroad
By Rob Lever
WASHINGTON (AFP) - Warren Buffett unveiled Tuesday a deal to take over Burlington Northern Santa Fe, one of the largest rail operators in North America, calling it a huge bet on the future of the US economy.
The billionaire investor's Berkshire Hathaway (NYSE: BRK-A - news) holding group said it would purchase the 77.4 percent of Burlington Northern Santa Fe (BNSF) that it does not currently own for 100 dollars per share in cash and stock.
The offer values the rail operator at 44 billion dollars, including 10 billion dollars in debt. Buffett will invest some 26.3 billion dollars for the new stake.
"It's an all-in wager on the economic future of the United States. I love these bets," said Buffett, known in financial circles as the "Oracle (NASDAQ: ORCL - news) of Omaha" for his investing acumen.
The takeover bid represents a 31 percent premium over BNSF's closing share price Monday.
"Our country's future prosperity depends on its having an efficient and well-maintained rail system," said Buffett, Berkshire Hathaway's chairman and chief executive, adding that the deal was the biggest ever for his storied investment fund.
"America must grow and prosper for railroads to do well," Buffett said, adding that "the investment in BNSF is a huge bet on that company... and the railroad industry."
Burlington Northern president, chairman and CEO Matthew Rose said the company welcomed deal.
"We are thrilled to have the opportunity to become a part of the Berkshire Hathaway family," said Rose.
"This transaction offers compelling value to our shareholders and is in the best interests of all of our constituents including our customers and employees."
The deal requires approval by holders of two-thirds of the railway's shares not already held by Berkshire Hathaway and review by regulators.
The transaction is expected to be completed in the first quarter of next year.
Joe Weisenthal at the financial website Clusterstock said Buffett may be banking on a new economic stimulus plan and other factors that may help the rail industry.
"While Burlington Northern is highly profitable, US rail -- especially passenger rail -- is kind of the laughingstock of the world," Weisenthan said.
"Buffett -- who has the ear of the president -- is guessing, safely, that... (the Obama administration) will open up the government's coffers for a major upgrade of the rail system. If we begin taxing carbon, thus making it more expensive to ship goods by truck, that's another plus."
Burlington Northern, a 150-year-old firm, operates some 51,000 kilometers (32,000 route miles) in 28 states and two Canadian provinces. It is a major transporter of grain, coal and other freight.
Based in Fort Worth, Texas, it has 40,000 employees and 6,700 locomotives. It earned a profit last year of 3.9 billion dollars on 18 billion in revenues.
Buffett, one of the world's richest individuals, was ranked number two this year by Forbes magazine behind Microsoft (NASDAQ: MSFT - news) founder Bill Gates among the wealthiest billionaires.
The 79-year-old Buffett, who at various times has been ranked as the world's richest person, has an estimated net worth of 37 billion dollars, according to Forbes.
But he has not been immune from the global financial crisis.
Berkshire Hathaway lost 1.5 billion dollars in the first quarter of 2009 amid market turmoil and the value of its assets fell by 6.1 billion dollars.
In the past year, it acquired stakes in investment bank Goldman Sachs (NYSE: GS - news) and conglomerate General Electric (NYSE: GE - news) as well as gum maker Wrigley and the insurer Swiss Re (Virt-X: RUKN.VX - news) .
The firm posted a net profit of 4.99 billion dollars for 2008, despite a deepening US recession and a global economic and financial crisis.
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