BERSHIRE BUYS BNSF IN BUFFETT'S BIGGEST DEAL: Warren Buffett's Berkshire Hathaway Inc. agreed to buy railroad Burlington Northern Santa Fe Corp. in what he described as an "all-in wager on the economic future of the United States." The purchase, the largest ever for Berkshire, will cost the company $26-billion, or $100 a share in cash and stock, for the 77.4 percent of the railroad it doesn't already own. Including his previous investment and debt assumption, the deal is valued at $44-billion, Omaha, Nebraska-based Berkshire said today in a statement. Berkshire has been building a stake in the Fort Worth-based railroad since 2006 as Buffett looked for what he called an "elephant-sized" acquisition allowing him to deploy his company's cash hoard, which was more than $24-billion at the end of June. Trains stand to become more competitive against trucks with fuel prices high, he has said. At $100 a share, Buffett is paying 18.2 times Burlington Northern's estimated 2010 earnings of $5.51, according to the average analyst projection in a Bloomberg survey. That compares with the 13.4 multiple for the Standard & Poor's 500 Index as of yesterday's close. Shares of Burlington Northern, the largest U.S. railroad, dropped 13 percent in the 12 months through yesterday. Competing railroad Union Pacific Corp.'s ratio was 13, while Jacksonville, Florida-based CSX Corp.'s was 13.1, Bloomberg data show. BNSF, with pretax income of $3.37 billion on revenue of $18-billion last year, would be Berkshire's second-largest operating unit by sales. Berkshire's largest business is insurance. Burlington Northern said two-thirds of the shares that aren't held by Berkshire must vote in favor of the transaction for it to proceed under Delaware law. The railroad said it anticipates a shareholder meeting in the first quarter of 2010 and the completion of the transaction "very shortly thereafter." [Brotherhood of Locomotive Engineers & Trainmen, 11-3-09, from Bloomberg News report]
BUFFETT DEAL A BET ON OBAMA POLICIES: Berkshire Hathaway Inc.'s planned purchase of Burlington Northern Santa Fe Corp. represents a bet that upcoming Washington policies to improve infrastructure and combat climate change will be a boon to the freight-railroad industry. President Barack Obama has said railroad investment will be a cornerstone of his transportation policies, given the environmental benefits and improved mobility that come with taking cars and trucks off roads. Mr. Obama has also said he would seek to budget $5-billion over the next five years for high-speed rail projects and to set up a national infrastructure bank to finance regional projects like rail improvements. Rail customers and industry executives indicated that the Burlington Northern deal could make Berkshire Chairman and Chief Executive Warren Buffett a key broker in the rail industry's battle against pending legislation that would toughen railroad antitrust laws. As an Obama supporter and an informal adviser to the president on the economy, Mr. Buffett could become the advocate for freight rail inside the administration that the Republican-leaning rail industry now lacks. [United Transportation Union, 11-3-09, from Dow Jones Newswires report]
BUFFETT BETS BIG ON RAILROADS' FUTURE: America's best-known investor, Warren E. Buffett, is making his biggest bet yet on the nation's economic future by buying, of all things, a railroad. After deftly capitalizing on the financial crisis with a series of bold deals, Mr. Buffett on Tuesday agreed to buy the 131-year-old Burlington Northern Santa Fe Corporation, Michael J. de la Merced and Andrew Ross Sorkin write in The New York Times. Mr. Buffett is wagering that as the economy revives, so will the demand for goods to be shipped by train. Burlington Northern carries coal and timber from the West, grain from the Midwest and imports arriving directly from Mexico and Canada, as well as through California ports. And railroads, Mr. Buffett contends, are transportation for a fossil fuel-challenged future, since trains are generally more efficient and greener than trucks. As part of the bid, Mr. Buffett is splitting Berkshire's class B shares 50-for-1 to pay Burlington Northern shareholders, breaking his rule of never splitting Berkshire's stock. The split increases the total number of class B shares while avoiding fractional stock ownership for Burlington Northern shareholders. Burlington Northern investors responded wildly to the news, pushing the company's stock price up nearly 28 percent to $97 a share. Mr. Buffett first bought a stake in the company in 2006, adding to shares held in two other railroad operators, Union Pacific and Norfolk Southern. Burlington Northern emerged as his choice, and he eventually built up a stake of 76 million shares in the company. [United Transportation Union, 11-4-09, from New York Times report]
BUFFETT'S BIG BET COULD HELP RAIL RIVALS: Warren Buffett believes he can make money owning a railroad, and that bodes well not only for BNSF Railway Co., Buffett's target, but the entire industry and BNSF's chief rival, Omaha-based Union Pacific, analysts and industry experts said. All four major railroad stocks closed higher Tuesday after Buffett announced that his Omaha investment company, Berkshire Hathaway Inc., planned to acquire BNSF for $34-billion in cash and stock and assumption of $10-billion in debt. Union Pacific issued a statement hailing Buffett's move but declined to comment further. Buffett himself ruled out the possibility of Berkshire acquiring Union Pacific, saying Tuesday that it would remain a BNSF competitor for at least another 50 years. To fund the acquisition, Berkshire will use $8-billion of its own money and borrow $8-billion, repaying it in three annual installments, leaving the company with about $20-billion in cash, Buffett said. Buffett has frequently praised the rail industry's vital role in the nation's economy, the economic advantages of rail transportation and BNSF in particular for its efficiency and earning power. The sale also is subject to approval by the U.S. Justice Department, which reviews such purchases in light of anti-trust laws intended to prevent monopolies. Berkshire also owns stock in Union Pacific and Norfolk Southern, raising the question of whether it would have to sell those holdings to keep ownership of the railroads separate. [United Transportation Union, 11-4-09, from Ohaha World-Herald report]
BUFFETT BETS ON GROWTH IN CONTAINER TRAFFIC: Warren Buffett says his railroad buy is an investment in America, but it's also a bet on a recovery in global trade. Burlington Northern Santa Fe Corp. is the nation's top railroad in intermodal transportation, in which container cargoes move from ships to rail cars to trucks and back again. The nation's biggest container ports are in Southern California, where BNSF trains load up millions of containers of Asian goods each year for inland markets like Dallas-Fort Worth. Terrance Pohlen, director of the Center for Logistics Education and Research at the University of North Texas, said intermodal is the future. "Looking down the road a few years, with everybody's views on what's likely to happen with fuel prices and congestion, intermodal is the long-term solution," he said. Developers are creating an inland port in southern Dallas, and BNSF bought 198 acres there last year with an eye toward building an intermodal hub. Union Pacific Railroad already operates an intermodal hub at what's called the International Inland Port of Dallas. "If you look at the BNSF network, they are really looking at growth of inland ports in the future, such as what we have in North Texas," Pohlen said. "It just makes sense to move by rail." [Brotherhood of Locomotive Engineers & Trainmen, 11-4-09, from Dallas Morning News website report]
U.P. SAYS BUFFETT DEAL GOOD FOR RAILS: Union Pacific Corp. executives said a move by Warren Buffett's Berkshire Hathaway Inc. to buy its rival Burlington Northern Santa Fe Corp. was a "strong positive statement" for the industry. Buffett's move was a "positive statement ... on what he thinks about rails, and in particular, what he thinks about western rails," and underscored that "there is a great amount of upside opportunity in the rails," company executives said during a Goldman Sachs conference. Though Union Pacific does some business with a few Berkshire-owned companies, the deal would have "no material impact either way" on Union Pacific, they said. [United Transportation Uniom, 11-4-09, from Reuters report]
BLET STATEMENT ON BNSF ACQUISITION: Brotherhood of Locomotive Engineers & Trainmen Acting President Paul Sorrow has spoken with BNSF Railway CEO Matt Rose regarding the railroad's acquisition by Warren Buffet's Berkshire Hathaway Inc. Brother Sorrow advised Mr. Rose that, in large part, it is the continued hard work of BLET locomotive engineers and all other union workers that has made BNSF Railway such an attractive investment target for Mr. Buffett. It is the BLET's position that the contribution of BLET members must be recognized during the upcoming round of contract negotiations. [Brotherhood of Locomotive Engineers & Trainmen, 11-4-09]
BUFFETT'S BNSF BUY MAKES SENSE: Warren Buffett's purchase of BNSF Railway is no surprise considering his interests in energy production, including coal-fired power plants in the Midwest that get their coal from the Powder River Basin. Berkshire Hathaway, Buffett's holding company, bought the nation's second largest railroad company for $34 billion Tuesday. Buffett told reporters that the move was "an all-in wager on the economic future of the United States." Coal from Powder River Basin in Campbell County is no small part of that wager. Hauling coal accounted for about 25 percent of BNSF's third-quarter revenue. Berkshire Hathaway owns 11 coal-fired power plants in the Midwest through its subsidiary, Mid-American Energy. Control of BNSF will give the company the transportation infrastructure to carry coal from the Powder River Basin to its power plants in the Midwest. Mid-American Energy also owns Rocky Mountain Power, which owns part of the Wyodak power plant east of Gillette. [Brotherhood of Locomotive Engineers & Trainmen, 11-4-09, from News Record website report]
NOT IMPRESSED WITH BNSF DEAL, ANALYST SAYS: Christmas may have come early for Burlington Northern Santa Fe Corp. shareholders, but the company's board came up short in extracting maximum value for this transcontinental railway franchise. Berkshire Hathaway Inc. offered to purchase the remaining 77.3 percent of the company it doesn't already own. Warren Buffett's holding company is paying $100 per share, or a 31 percent premium to Monday's closing price. Yes, the 8.6x lagging 12-month EV/EBITDA multiple falls within the historical 8-9x industry range, but the range is generally reflective of pre-secular pricing strength, according to UBS analysts. They also noted that the multiple paid is on cyclically depressed EBITDA. It shrinks to 8.1x on next 12-month earnings and 7.8x based on estimated 2010 and 2008 numbers. "For a premier franchise? We're not impressed." While the deal requires BNI shareholder and regulatory approval, with a meeting and vote tentatively scheduled for the first quarter of 2010, the deal should close soon after. It does not require Surface Transportation Board review and approval, does not involve a merger of two rails, and Berkshire does not control any other rails. It does own small, non-controlling stakes in Union Pacific Corp. and Norfolk Southern Corp. So with Burlington shares trading just a few dollars shy of the offer price, investors would be wise to go elsewhere for their rail exposure. [Brotherhood of Locomotive Engineers & Trainmen, 11-5-09, from Financial Post website column]
INVESTORS SUE BERKSHIRE, BNSF OVER DEAL: Warren Buffett's Berkshire Hathaway and Burlington Northern Santa Fe are being sued by investors over claims Berkshire's acquisition of the railroad would not maximize shareholder value. The deal also threatened Berkshire's AAA rating by Standard & Poor's. The lawsuit, filed Nov.4 in Texas state court, claims directors at Burlington Northern did not provide shareholders with sufficient information to allow them to determine whether they should tender their shares for the merger agreement. Burlington Northern directors agreed to a termination fee, a "no- shop, no-talk" provision and other protections for Berkshire "well before any price-maximising process took place in a blatant effort to ensure that controlling shareholder Berkshire, their favored partner, is Burlington Northern's ultimate acquirer", the complaint says. On Nov.4 it emerged that Berkshire was more likely to lose its AAA rating from Standard & Poor's after the Burlington deal. "This transaction will decrease the liquidity and capital adequacy of the insurance operations," the ratings company said on Wednesday, placing Buffett's firm on "CreditWatch with negative implications." [United Transportation Union, 11-5-09, from Business Day website report]
BNSF DEAL HIGHLIGHTS NEED FOR REFORM, RAIL-CUSTOMER ADVOCATE SAYS: There was an almost euphoric tone to the news last week when Warren Buffett sprung for the rest of Burlington Northern Santa Fe. Some don't see the deal so fondly, though. Among them is Robert Szabo, executive director of Consumers United for Rail Equity (CURE), a coalition of captive freight rail customers seeking changes in federal law and policy that CURE says would require railroads to provide more competitive pricing and reliable service. CURE represents captive shippers, such as utilities, and those in agriculture, timber and other industries that have little or no option but to depend on railroads. "The announcement of Berkshire Hathaway's purchase of BNSF highlights some of the key reasons consumers need rail reform now: The current oversight system is broken and railroad monopoly pricing results in excessive rates for consumers," Szabo said in a response to the BNSF deal. Case in point: The U.S. Surface Transportation Board's decision in favor of Lincoln Electric System and its partners in the Laramie River Station, who accused BNSF Railway of charging way too much to deliver coal to the captive generating plant. That's worth $119-million up front in rate refunds, plus $245-million in future rate reductions. BNSF is appealing in federal court. "The Surface Transportation Board recently found BNSF to be 'revenue inadequate,' meaning the board found that BNSF is not earning enough money to attract and retain adequate capital. Despite the recent STB finding, America's savviest investor is not only purchasing BN stock, but purchasing all of BN's stock and at a 30 percent premium! Consumers suffer from this consistent STB record of underestimating the financial strength of the freight railroads, which results in board toleration of every escalating captive rail rate," Szabo wrote. "If the BN becomes the first privately held large freight railroad in the history of the nation, BN will become even less transparent in its activities because it will not be required to file reports with the SEC," Szabo wrote. "The risk in a transaction like this is that consumers end up paying the premium paid for BN through excessive rates that BNSF can charge because of monopoly pricing protections." [Brotherhood of Locomotive Engineers & Trainmen, 11-7-09, from Lincoln Journal Star website report]
BNSF CEO CALLS BERKSHIRE DEAL 'GREAT OPPORTUNITY': Burlington Northern Santa Fe Corp. need no longer worry about hedge funds or other "activist investors" that attempt hostile takeovers, said Matthew K. Rose, CEO of the rail company. If BNSF shareholders approve the purchase by Omaha-based Berkshire Hathaway Inc., which they are expected to do, the company will reside safely under the wing of Warren Buffett. Rose, who also is BNSF chairman and president, talked at length Friday about Buffett's surprising announcement last week that he would purchase BNSF. The purchase has no downside for shareholders, customers or employees, said Rose. Shareholders get a 30 percent premium on the recent share price, customers get a stable partner, and management and employees get an owner who values long-term growth, he said. Rose said he isn't worried that Buffett or Berkshire will interfere in Rose's management of the corporation's chief subsidiary, BNSF Railway Co. of Fort Worth, Texas. The deal requires shareholder and regulatory approval but is expected to close early next year. BNSF's board will be dissolved after the acquisition. Analysts and industry experts have said Buffett's purchase offer reflects well on the value of railroads. [Brotherhood of Locomotive Engineers & Trainmen, 11-8-09, from Omaha World-Herald website report]
BUFFETT TO DISPOSE OF NON-BNSF RAIL HOLDINGS: Before it completes its deal to buy out the rest of BNSF, Warren Buffett's Berkshire Hathaway will divest its shares of Union Pacific Railroad and Norfolk Southern Railway. BNSF Chairman Matt Rose made that statement in a conference call Nov. 9 with employees of his company, according to a transcript filed with the Securities and Exchange Commission. "He owns shares in both Union Pacific and Norfolk Southern," Rose told a caller. "He will be disposing of both of those holdings between now and the transaction date." That date is expected in the 2010 first quarter. Rose also reinforced earlier comments he had made about the good reception the Berkshire purchase of BNSF is receiving among U.S. policymakers. [United Transportation Union, 11-10-09, from Journal of Commerce report]
BNSF PURCHASE 'NOT A BARGAIN,' BUFFETT SAYS: Berkshire Hathaway Inc.'s Warren Buffett, who agreed to buy Burlington Northern Santa Fe Corp. in his biggest takeover, said the railroad's results in the next 100 years will justify a $26-billion bid that's "not a bargain. It's a good asset for Berkshire to own over the next century," Buffett said in an interview with Charlie Rose broadcast yesterday on PBS. "You don't get bargains on things like that. It's not cheap." Buffett agreed to pay 18.2 times Burlington' estimated 2010 earnings of $5.51 a share, according to the average analyst projection in a Bloomberg survey before the deal was announced. That compares with the 13.4 multiple for the Standard & Poor's 500 Index as of Nov. 2. Buffett built Berkshire by buying out-of-favor stocks and acquiring companies with what he says are enduring advantages over competitors. [Brotherhood of Locomotive Engineers & Trainmen, 11-15-09, from Bloomberg News report]
S.T.B. UNLIKELY TO REVIEW BUFFETT'S PURCHASE OF BNSF: The top economic regulator of U.S. railroads said the potential for his agency to have a role reviewing Warren Buffett's planned purchase of BNSF Railway "is looking more and more remote." Daniel Elliott, chairman of the Surface Transportation Board, which reviews rail mergers, oversees rail disputes with freight shippers and estimates railroad capital costs in relation to setting some freight rates, made the remarks Nov.18 before the Transportation Research Forum in Washington, D.C. BNSF officials and rail analysts have said they do not expect any STB review of the deal, since while Berkshire held some stock in two other railroads Union Pacific Railroad and Norfolk Southern Railway -- this acquisition does not involve a merger of railroads such as the STB examines. [United Transportation Union, 11-18-09, from Journal of Commerce report]
BUFFETT PURCHASE OF BNSF HEADING TO COURT: Legal skirmishing has commenced in courts in Texas and Delaware as lawyers from across the country prepare to do battle over whether Warren Buffett should have to pay more than $26.3-billion to take over BNSF Corp. More than a dozen attorneys gathered Dec.4 in the Tarrant County courtroom of state District Judge Dana Womack for one of a series of hearings on how and where the cases will go forward. Buffett's Berkshire Hathaway agreed to buy BNSF stock for $100 a share, a 31 percent premium over the previous day's closing stock market price. It's likely that by the end of next week, the four cases in Tarrant County, three in Dallas County and five in Delaware will be consolidated into one class-action lawsuit, lawyers said. The shareholders' attorneys will seek to have expert witnesses testify that BNSF is worth more than the $100 a share Berkshire has agreed to pay. [Brotherhood of Locomotive Engineers & Trainmen, 12-4-09, from Star Telegram report]
BNSF-BERKSHIRE DEAL CLEARS ANTITRUST HURDLE: The $26-billion buyout of BNSF Railway by Warren Buffett's Berkshire Hathaway investment firm cleared a key antitrust review process. The Federal Trade Commission listed the transaction among several that were granted "early termination" from a mandatory waiting period under antitrust law. It means both the FTC and Department of Justice have conducted a preliminary review of the merger filing, and cleared the deal to proceed. The two companies said "this regulatory action is an important step in satisfying the closing conditions as set forth in the merger agreement. BNSF and Berkshire continue to expect the transaction to close in the first quarter of 2010." Separately, the economic regulator of railroads, the Surface Transportation Board, has signaled it will probably not have jurisdiction over Berkshire's acquisition of BNSF, because the STB normally reviews rail mergers and Berkshire does not own another railroad. Buffett recently said Berkshire also shed stock it previously held in Union Pacific Railroad and in Norfolk Southern Railway, so that those holdings would not get in the way of the BNSF purchase. Some shipper representatives have said the STB will need to act, though, to prevent Buffett's 31 percent premium for BNSF shares from elevating the railroad's rate base and thereby helping push freight rates higher. [Brotherhood of Locomotive Engineers & Trainmen, 12-7-09, from Journal of Commerce website report]
BNSF SCHEDULES STOCKHOLDER VOTE ON BERKSHIRE ACQUISITION: Burlington Northern Santa Fe Corp. announced it will conduct a stockholders vote on Feb. 11 regarding the adoption of a merger agreement with Berkshire Hathaway Inc. Stockholders of record at the close of business on Dec.18 will be entitled to vote at the meeting. [Progressive Railroading website report, 12-11-09]
BNSF URGES SHAREHOLDERS TO VOTE FOR BERKSHIRE DEAL: A colorful 8-page brochure is being mailed by Burlington Northern Santa Fe to its shareholders, urging them to vote for the freight railroad's proposed acquisition by Warren Buffett's Berkshire Hathaway. The cover features a photograph of BNSF Chairman & CEO Matthew Rose, with Buffett standing behind him. Both men are smiling. Underneath, in orange: "We Need Your Support." In a letter to shareholders in the brochure, Rose urges them to "vote FOR approval of the acquisition TODAY ... If you do not vote, it will have the same effect as a vote against the transaction." In a Q&A section, the brochure quotes Buffett on why Berkshire wants to acquire BNSF. BNSF has scheduled a special meeting of shareholders for February 11 to vote on the deal. [Brotherhood of Locomotive Engineers & Trainmen, 1-4-10, from CNBC website report]
BNSF SHAREHOLDERS APPROVE BERKSHIRE DEAL: At about lunchtime Febr.12, BNSF Railway Co. will become a privately held company. Yesterday, Burlington Northern Santa Fe Corp. shareholders voted in favor of the proposed $26-billion-plus acquisition by Warren Buffett/Berkshire Hathaway Inc. during a stockholder meeting in Fort Worth, Texas. Preliminary voting results released by the Class I show that about 70 percent of stockholders who own non-Berkshire-owned BNSF shares approved the transaction. [Progressive Railroading website report, 2-12-10]
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