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Buffett Buys Burlington Northern for $34 Billion

Tuesday, 03 Nov 2009 08:47 AM

NEW YORK -- Warren Buffett's Berkshire Hathaway Inc has struck a deal to buy the rest of railroad Burlington Northern Santa Fe Corp for $26 billion, Buffett's biggest acquisition ever.

In a statement announcing the deal on Tuesday, Buffett said railroads are key for U.S. growth and will grow as the nation grows.

"It's an all-in wager on the economic future of the United States," he said. "I love these bets."

Berkshire Hathaway will pay $100 per share in cash and stock for the 77.4 percent of the railroad's shares it does not already own. The price represents a premium of 31.5 percent over Burlington Northern's closing stock price on Monday, and values the railroad at $34 billion.

Shares of rail companies rallied in premarket trading following news of the deal, and stock index futures pared losses.

"We'll have more people moving more goods 10, 20, 30 years from now," Buffett, Berkshire chairman and CEO, said on CNBC television. "I just believe this country will prosper."

He said he was not interested in buying the rest of Burlington Northern rival Union Pacific Corp, whose shares he also owns. He said he expected the companies to remain rivals for the next half century.

The Burlington Northern deal is "clearly a move to leverage on coal," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

"Because Burlington Northern moves coal around the country, I think Buffett is trying to get into coal but doing it in a cheaper way," he said. "It's leveraged against coal's demand without actually having to buy the commodity itself."

Burlington Northern shares surged 29 percent to $97.78 in premarket trade. Among its peers, Union Pacific gained 8.1 percent to $59.50, CSX Corp was up 8.5 percent to $46.50, and the iShares Dow Jones Transportation Average ETF climbed 5 percent to $67.50.

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