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Warren Buffet-led Firm Acquires Fort Worth’s BNSF

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For $100 per share in cash and stock, Omaha-based Berkshire Hathaway Inc. acquired Fort-Worth based Burlington Northern Santa Fe Corp. in late fall. Based on the number of outstanding BNI shares, the transaction was valued at approximately $44 billion, including $10 billion of outstanding BNSF debt, making it the largest acquisition in Berkshire Hathaway history.

The transaction requires approval by holders of two-thirds of BNI’s outstanding shares (other than shares held by Berkshire Hathaway), and customary closing conditions, including Department of Justice review. Closing is expected to occur during the first quarter.

“Our country’s future prosperity depends on its having an efficient and well-maintained rail system. Conversely, America must grow and prosper for railroads to do well. Berkshire’s $34-billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team and the railroad industry,” said Warren Buffet in a prepared statement addressing the BNSF as an attractive acquisition. “But, most important of all, it’s an all-in wager on the economic future of the United States… I love these bets.”

BNSF is, by most measures, the best run of the largest railroads, Terry L. Clower, director of the Center for Economic Development and Research at the University of North Texas, told Texas Construction.

“Buffet and Rose have both said that Berkshire Hathaway is not expecting a change in operations or operating management philosophy. This promise of a hands-off approach was apparently a key factor in the BNSF board's recommendation that shareholders accept Buffet's offer,” Clower said.

Aside from substantial gains that stockholders and executives will reap based on the 30 percent premium that BH is offering for BNSF stock, the main strategic gain for the company is to allow management to guide the company outside of the very-short term, sometimes myopic, vision of Wall Street investors, he added.

“No more worrying about the company's stock being beat up because earnings reports for a given three-month period do not meet analysts expectations. The market value of the company will no longer be tied as closely to irrational exuberance or trader panic, meaning that long range financial and operating planning can be accomplished more efficiently,” Clower says. “However, BNSF leadership is trading one form or uncertainty for another. Buffet is 80 years old and has steadfastly refused to publicly name an heir apparent. Anticipating the role that Berkshire Hathaway would want to play in BNSF operations post-Buffet is somewhat speculative at best, and wishful thinking at worst. Given that there is little that needs fixing in current BNSF operations, I see limited gains for the company itself -- but the buy out does create a nice payday for executives and stockholders.”

 

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