Warren Buffett leads a simple life. But when the revered business legend buys a train set, it’s a $34 billion mega-deal.
Coming along just as the economy has begun to recover, Buffett’s bid on Tuesday to buy the Burlington Northern Santa Fe Corp. amounts to an “all-in wager on the economic future of the United States,” the CEO of Berkshire Hathaway Inc. said in an announcement.
“I love these bets.”
One of the world’s richest men, Buffett increasingly has been sharing his affections for American investments, including a personal essay in The New York Times about a year ago.
He heralded a $5 billion investment in financial giant Goldman Sachs Group amid the financial crisis last fall, and he trumpeted a $3 billion buy into General Electric Co. barely a week after that.
The key difference with Tuesday’s announcement is that Buffett is buying BNSF outright, in what would be the biggest deal in Berkshire’s history. Before this, Berkshire’s biggest acquisition was the $16 billion stock purchase of reinsurance giant General Re in 1998.
Omaha, Neb.-based Berkshire will shell out $34 billion in cash and Berkshire shares to acquire the 77.4 percent of BNSF it doesn’t already own. That values the company at $100 a share.
After the move by Buffett, shares of BNSF jumped $20.93, or 27.5 percent, to $97.
In addition, Berkshire will assume $10 billion in BNSF debt.
The deal would broaden Berkshire’s deep Kansas City footprint, which includes ownership of Helzberg’s Diamond Shops Inc. and the parent firm of Reece & Nichols Realtors. It was for seven years a major investor in H&R Block Inc., selling its last shares in 2007.
BNSF, based in Fort Worth, Texas, is the nation’s second-largest railroad after Union Pacific, which coincidentally is based in Omaha.
BNSF operates two rail yards in the area and employs more than 2,300. Union Pacific has about 1,100 workers in the area.
Kansas City’s economy could feel a direct boost from the deal if it helps prod the railroad’s plans to build a major rail-truck freight hub near Gardner and Edgerton, Kan.
“This couldn’t be better news for Kansas City,” said Chris Kuehl, managing director of Armada Corporate Intelligence in Kansas City. “You get Buffett money behind the company, which creates investor confidence. Plus, he leaves the railroad guys alone to run the business. This ought to be a real green light for Burlington Northern projects like the one near Gardner.”
Buffett analyzed his own decision Tuesday as equal parts economic forecast and business play.
“Our country’s future prosperity depends on its having an efficient and well-maintained rail system,” Buffett said in the announcement. “Conversely, America must grow and prosper for railroads to do well.”
Buffett has said he realized a few years late that railroads were an appealing investment. As diesel prices rise, shipping by rail instead of truck becomes more attractive, and it would be extremely difficult for a competitor to build a new railroad.
“They do it in a cost-effective way and extraordinarily environmentally friendly way,” Buffett told CNBC. “I basically believe this country will prosper and you’ll have more people moving more goods 10 and 20 and 30 years from now, and the rails should benefit. It’s a bet on the country, basically.”
By buying the rest of BNSF, Buffett has upped the ante if he has miscalculated.
The Associated Press contributed to this report. To reach Mark Davis, call 816-234-4372 or send e-mail to mdavis@kcstar.com. To reach Randolph Heaster, call 816-234-4746 or send e-mail to rheaster@kcstar.com.
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