Buffett on track for biggest ever deal with $26bn buyout
WARREN Buffett’s Berkshire Hathaway will pay $26bn (£15.9bn) to buy out railroad Burlington Northern Santa Fe in what the billionaire investor called a bet on the US economy.
The deal, Buffett’s biggest-ever acquisition, is priced at a premium of 31.5 per cent over BNSF’s closing stock price on Monday and values the railroad at $34bn.
“It’s an all-in wager on the economic future of the US,” Buffett said, adding that railroads are key to the US economy and will benefit as recovery takes hold. “I love these bets.”
Berkshire Hathaway will pay $100 per share in cash and stock for the 77.4 per cent of BNSF shares it does not already own. Berkshire will also assume $10bn of BNSF debt. The deal is expected to close in the first quarter of 2010.
“For the market, it can be seen as a sign of confidence about the economy,” said Peter Boockvar, equity strategist at Miller Tabak, adding it was logical for Buffett to buy the rest of the railroad. “Berkshire is seeing way past some impending economic recovery signs now and looking into the future,” he said.
Berkshire’s board approved a 50-for-one split of the company’s Class B common stock to help ease the way for the deal. “We’ll have more people moving more goods 10, 20, 30 years from now,” said Buffett, Berkshire chairman and chief executive. “I just believe this country will prosper.”
He said he was not interested in buying the rest of BNSF rival Union Pacific, whose shares he also owns. He said he expected the companies to remain rivals for the next half century.
“We won’t be making any huge deals for a while,” he said. “I made (BNSF chief executive Matt Rose) an offer and he said he would take it to his board and it took about 15 minutes.”
Some analysts said the deal did not necessarily signal a wave of mergers and acquisitions in railroads.
Berkshire said the deal would make it easier for smaller investors to swap their shares for Berkshire stock.