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Buffett makes $44B railroad bet

1-for-50 stock split to help finance purchase of Burlington Northern Santa Fe

Last Updated: Tuesday, November 3, 2009 | 1:39 PM ET

CBC News

Warren Buffett's Berkshire Hathaway Inc. says it has agreed to buy Burlington Northern Santa Fe railroad in a deal valuing the company at $34 billion US.

Billionaire investor Warren Buffett, shown in a file photo, has made his biggest bet ever, offering to snap up railroad Burlington Northern Santa Fe for $34 billion US. (Louis Lanzano/Associated Press)

The deal itself is valued at $44 billion US as Berkshire will be assuming $10 billion US of the railroad's debt.

"Our country's future prosperity depends on its having an efficient and well-maintained rail system," Berkshire chair Warren Buffett said. "It’s an all-in wager on the economic future of the United States. I love these bets."

Berkshire Hathaway already owns a stake of about 22 per cent in Burlington Northern, and is now offering $100 US a share for the rest of the company. That is a 32 per cent premium over Burlington's closing price on Monday.

The deal announced Tuesday has been approved by the boards of both companies, but the deal is contingent on shareholder approval.

Three-month stock chart for Warren Buffett's B shares. (CBC)

If Buffett is succesful in buying Burlington and its 51,000 kilometres of railroad track, it would be the biggest acquisition ever for Berkshire Hathaway Inc.

In 1999, Burlington Northern attempted a merger with Canada's largest railway company, Montreal-based Canadian National Railway. But the deal was scuttled by the U.S. federal agency that oversees the railway industry.

Since then, CN has moved ahead with several smaller acquisitions to boost its American presence, but the two companies have also co-operated with each other to share infrastructure and increase efficiency.

Stock split

Also on Tuesday, the Berkshire conglomerate announced plans for a 1-for-50 stock split of its Class B shares. The shares closed at $3,265 US on Monday.

The Burlington acquisition consists of cash and stock components, and Berkshire said it needs to increase its float of B shares to "to accommodate holders of smaller amounts of BNSF shares who opt for a share exchange rather than a cash payment."

Internal Links

Buffett admits investment mistakes after historic loss
Berkshire Hathaway defends derivative valuations
Buffett takes a $1.5B loss on ConocoPhillips, derivatives

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