Buffett's Latest Monopoly

Feb. 05, 2010 10:28 AM ET
Tom Au, CFA's Blog
1.1K Followers
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Warren Buffett has just done what James J. Hill, the great railroad "conglomerator" was unable to do: control both the Great Northern Railroad and the Northern Pacific Railroad. This was achieved through Berkshire's purchase of Burlington Northern. These lines connect the Midwest, Great Plains, and Pacific Northwest.

Following the purchase of Burlington Northern (which now owns both railroads, plus the Atchison, Topeka, and Santa Fe), his Berkshire Hathaway has recently become a company out of "Monopoly," with its railroads and utilities, and assorted other assets (such as home builders), with their houses and hotels. The cost of the latest move, however, involved an $8 billion debt raise and the loss of the AAA credit rating.

This is a heavy price to pay for the acquisition, whose rationale is not immediately obvious to most people. But while things have changed in the past century, there is still enough of a lure to persuade someone to pay top dollar (not to mention the "shorts" who ended up paying $1000 a share to cover their holdings of Northern Pacific).

James J. Hill was a monopolist at heart, (although the anti-trust President, Theodore Roosevelt prevented him from carrying out his plans). It looks like Mr. Buffett wants to follow his example.


This is in character with the man who likes toll bridges.
Long BRK/A, regards for Vitaliy Katsenelson, whose article inspired this one.

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