Burlington Northern Santa Fe Acquisition Promises Growth for Berkshire Hathaway

Warren Buffett, 79 years old and the world's biggest and smartest investor, yesterday Nov 3, 2009, announced in a big way that his Berkshire Hathaway (BRK.A) is acquiring Burlington Northern Santa Fe (BNI) for $26 Billion. The detail of the transaction can be found here on CNBC. Berkshire will acquire the 77 percent stake in Burlington Northern Santa Fe that it doesn't already own for $100 a share in cash and stock. CNBC interviewed Warren Buffett on his reasonings on his latest and biggest deal as well as his take on the economy:

Our view:

• The acquisition will propel Berkshire Hathaway to be an even bigger conglomerate by owning the second largest railroad business in the US. To certain extent, the deal is a classic Warren Buffett's bet that the increasingly better and more efficient US rail road transportation business will likely outperform the US economic growth as businesses nowadays are continuously seeking more efficient and effective ways to deal with ever increasing transportation costs (think of expensive oil price per mile per day, if you use trucks instead of trains) during the difficult economic climate.
• At the same time, with this deal, Mr. Buffet at his current age and success (he is still no.2 richest man in the US and the world) has shown to Wall Street and Main Street globally both his unwavering nationalism and unsurpassed prowess to do great deals even during difficult economic climate that likely will eventually make tons of money during slow-growth economic environment going forward. Mr. Buffett is likely focusing on his legacy and what he can do for his country (US) while still making decent long-term profits at the same time.
• This does not mean prudent investors and traders should think that all the macro and micro problems and challenges the US economy and companies are facing now are things of the past. The economy is likely to grow very slowly on average over the long-term if not stagnant as companies and people are in the process of multi-years deleveraging. The road ahead for US and global economies will likely be uneven and full of potholes. Investors and traders should be extremely well-prepared for various sudden shocks and unpredictable volatility going forward. Remember Warren Buffett's timeless advice: "Rule No.1: Don't lose money. Rule No. 2: Don't forget rule no.1."

Comments

[Mad Hedge F...:]

dty You’ve got to hand it to Warren Buffett, who never does anything half heartedly. The stunning news that his Berkshire Hathaway (BRK/A) is paying $44 billion for the 73.4% of Burlington Northern Sante Fe (BNI) he doesn’t already own, a 30% premium, had punch drunk traders picking themselves off of the floor. The other rails rocketed, like Union Pacific (UNP), CSX (CSX), and Kansas City Southern (KCSR). The deal is the Oracle of Omaha’s largest in his career, and took the BNI board all of 15 minutes to approve. For me this deal speaks volumes about the long term trends in the US economy as seen by its greatest investor. It screams Commodities! Commodities! Commodities! Rails can only prosper moving bulk freight from the heartland to ports on the three coasts, which foreigners are buying in ever larger quantities at ever higher prices. It also says the coal industry isn’t going anywhere soon, as it accounts for 70% of all rail traffic, so you can kiss Cap & Trade goodbye. Buffet let loose of some fascinating statistics about the enormous productivity increases the industry has accomplished. In the last 25 years, it cut employment from 500,000 to 175,000, while increasing freight by 60% and reducing track by 40%, and now accounts for 40% of the total goods moved in the country. Railroads are the greenest transportation out there, a ton of freight requiring only a gallon of fuel to move 470 miles. When I was growing up, my big goal in life was to become a train engineer. Maybe it’s time for me to revisit that aspiration. And I promise not to text while driving!

Nov 04 06:19 AM

[akorozco:]

What's he betting on? In a recession like this, it's gotta be something better than just "moving goods"... www.newsy.com/videos/w...

Nov 04 09:35 AM

[Sovestor:]

Buffett does deals with speed of light and full heart. The Burlington deal only took 10 days according to CNBC. On top of that, Buffett does not hire any investment banking advisors. That is unbelievable.


On Nov 04 06:19 AM Mad Hedge Fund Trader wrote:

> dty You’ve got to hand it to Warren Buffett, who never does anything
> half heartedly. The stunning news that his Berkshire Hathaway (BRK/A)
> is paying $44 billion for the 73.4% of Burlington Northern Sante
> Fe (BNI) he doesn’t already own, a 30% premium, had punch drunk traders
> picking themselves off of the floor. The other rails rocketed, like
> Union Pacific (UNP), CSX (CSX), and Kansas City Southern (KCSR).
> The deal is the Oracle of Omaha’s largest in his career, and took
> the BNI board all of 15 minutes to approve. For me this deal speaks
> volumes about the long term trends in the US economy as seen by its
> greatest investor. It screams Commodities! Commodities! Commodities!
> Rails can only prosper moving bulk freight from the heartland to
> ports on the three coasts, which foreigners are buying in ever larger
> quantities at ever higher prices. It also says the coal industry
> isn’t going anywhere soon, as it accounts for 70% of all rail traffic,
> so you can kiss Cap & Trade goodbye. Buffet let loose of some
> fascinating statistics about the enormous productivity increases
> the industry has accomplished. In the last 25 years, it cut employment
> from 500,000 to 175,000, while increasing freight by 60% and reducing
> track by 40%, and now accounts for 40% of the total goods moved in
> the country. Railroads are the greenest transportation out there,
> a ton of freight requiring only a gallon of fuel to move 470 miles.
> When I was growing up, my big goal in life was to become a train
> engineer. Maybe it’s time for me to revisit that aspiration. And
> I promise not to text while driving!

Nov 04 10:11 AM