Berkshire buys BNSF

[Steve_WI]

From Yahoo.com and the Associated Press:

NEW YORK – Warren Buffett's Berkshire Hathaway Inc. on Tuesday agreed to buy Burlington Northern Santa Fe Corp., making a $34 billion bet on the future of the U.S. economy.

Burlington Northern, the nation's second-largest railroad, is the biggest hauler of food products like corn and coal for electricity, making it an indicator of the country's economic health. The railroad also ships a large amount of goods from Western ports including everyday items such as refrigerators, clothing and TVs.

Analysts say Buffett is planting both feet in an industry that is poised to grow as the economy gets back on solid ground. If approved, it would be the biggest acquisition ever for Berkshire Hathaway Inc.

Berkshire Hathaway already owns about 22 percent of Burlington Northern, and said it will pay $100 a share in cash and stock for the rest of the company, a 31.5 percent premium on Burlington Northern's Monday closing price. Shareholders have the option to convert their stock for a cash payment of $100 per share or receive Berkshire Class A or Class B common stock. Up to 60 percent of the deal is cash and 40 percent is in stock.

"Berkshire's $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry," Buffett said in a statement.

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

The majority of the stock in the deal will be Berkshire's "A" shares, but Berkshire's board also approved a 50-for-1 split of its Class B common stock for holders of smaller amounts of Burlington shares who opt for a share exchange rather than cash. Berkshire's Class B shares closed Monday at $3,265. With the split, each share will be worth $65.30. Burlington shares shot up $21.33, or 28 percent to $97.40 in morning trading. Shares of other major rails, including Burlington's larger rival Union Pacific Corp., rose as well.

Berkshire also owns stock in two other major U.S. railroads — 9.56 million shares of Union Pacific Corp. and 1.93 million shares of Norfolk Southern Corp., as of June 30.

The deal for Burlington Northern has been approved by the boards of both companies, but still needs two-thirds approval of Burlington's shareholders and antitrust clearance. The railroad expects to clear those hurdles in the first three months of next year.

Last week the railroad reported third-quarter profit dropped 30 percent to $488 million, or $1.42 per share, as consumers continued to hold back on buying retail goods and industrial production struggled.

Burlington was one of the least optimistic among major railroads about the pace of economic recovery. CEO Matt Rose said consumers are going to be the driver of any improvement in the economy, but no one is buying yet.

Analysts say Buffett is looking for an investment that will reap rewards for many years into the future, and isn't so concerned about immediate gains.

"(Buffett is) buying at the trough — things aren't going to get much worse. He's getting in at a good time," said Art Hatfield, an analyst with investment firm Morgan Keegan.

Hatfield said he believes Buffett went for Burlington Northern in part because of its good management team, an important aspect in any of the billionaire's deals.

Hatfield also said that Burlington Northern has been more progressive than its peers in developing new technology, allowing to be more profitable. Major railroads have been able to slash costs during the recession by cutting jobs, parking railcars and making strides to improve train speeds and other metrics that improved efficiency.

Saw the writing on the walls.  Was eventually gonna happen sooner or later. 

[Rob Archer]

WOW! 

[norseman]

WOW! 

I second that... 

Jan.

[Mike C]

Wow,  Im sure the loss of business from Hub Group helped contribute to there 3rd quarter loss.  Since Hub decided this summer to mainly run all equipment via UP and a very small amount of HUBU's on the BNSF line,  I have noticed that business i booming over at UP and rather slow at the BNSF.

[MackPower]

I wish someone would buy Union Pacific. My old Overnite/ UP stock could use a shot in the arm.

[Mike C]

I wish someone would buy Union Pacific. My old Overnite/ UP stock could use a shot in the arm.

  Id really like to see BNSF merger or acquire UP, then we would be able to run cans south to California.  UP seems to be to uptight for me.   For a short time we ran our containers up from SoCal to Portland as TOFC with them mounted on BNSF chassis.  they would occasionaly arrive with flat tires.  UP would allow the tires to be repair/replaced on there property because the chassis belong to BNSF.  Im really glad we no longer do business with UP as of the end of September.

[RedStapler]

  Id really like to see BNSF merger or acquire UP, then we would be able to run cans south to California.  UP seems to be to uptight for me.   For a short time we ran our containers up from SoCal to Portland as TOFC with them mounted on BNSF chassis.  they would occasionaly arrive with flat tires.  UP would allow the tires to be repair/replaced on there property because the chassis belong to BNSF.  Im really glad we no longer do business with UP as of the end of September.

I'd give up better odds on getting a Sleigh Ride from Satan than the Justice Department allowing any more rail mergers. From a competition perspective the Rail Industry is already highly concentrated.

[Chris_E]

I'd give up better odds on getting a Sleigh Ride from Satan than the Justice Department allowing any more rail mergers.

Did I read that right?   I'm doing a term paper on deregulation in trucking, and it seems the Justice Department is VERY strict when it comes to mergers, especially in railroading, like you said.

[hwyhaulier]

Chris E -

...I'm doing a term paper on deregulation in trucking, and it seems the Justice Department is VERY strict when it comes to mergers, especially in railroading, like you said...   

I'll assume you are amidst diligent efforts to be scholarly and objective, and get it right. So, this offered as helpful hints, and a peek at the answers in
the back of the book...

1. By all means, see the site for long and ongoing work of CASS BANK, St. Louis, and its assessments of highway de-reg. (A.: It didn't do much good.)

2. DoJ. Just so much posturing? This implies the threat of the Anti trust Division "big gun field piece" will see some action. Pfui! It's a paper tiger, and
on balance they have likely lost more actions than they ever won...

3. National policy, generally. Still another charade? Chase the trail for the proposition: There is no real national policy at all. It is simply an every two
year game of hyperbole to assure re-election of various incumbents...

.....................Vern................

[Chris_E]

Chris E -

I'll assume you are amidst diligent efforts to be scholarly and objective, and get it right. So, this offered as helpful hints, and a peek at the answers in
the back of the book...

1. By all means, see the site for long and ongoing work of CASS BANK, St. Louis, and its assessments of highway de-reg. (A.: It didn't do much good.)

2. DoJ. Just so much posturing? This implies the threat of the Anti trust Division "big gun field piece" will see some action. Pfui! It's a paper tiger, and
on balance they have likely lost more actions than they ever won...

3. National policy, generally. Still another charade? Chase the trail for the proposition: There is no real national policy at all. It is simply an every two
year game of hyperbole to assure re-election of various incumbents...

.....................Vern................

Thanks for the info Vern.  I've been finding a lot of information, but so much of it seems to be in the favor of dereg.  I'd like to do a paper that's unbiased to both and tell it like it is, but I can't seem to find any websites that have any "official" documentation as to why it was bad.  The only way  I can show the other side of the coin at the moment is by drawing my own conclusions based on my findings from other government documents and the knowledge I've already gained from this site.  I wonder if I can use Hank's as a source?

[hwyhaulier]

Chris -

This should help. It is a page from the CASS BANK service. They have been at it with freight since 1956. Year over year it has reported no net savings as a result of deregulation. http://www.cassinfo.com/freightpay.html

Sources? Well, I always prefer to "...go to the horse's mouth..." of primary source documents, interviews with players who were on the scene, and so on. So much of the Hank's entires are, effectively, derivative. Here and there, plenty of first person accounts from personal recall. I would say best way to deal with that would be to credit the source, and also a brief "bio" of background and experience of the source...

As far as existing "white paper" analyses out there, making the case that dereg was not a good thing? They are around. I think a web search can take an inquirer to several US DOT sites. (I had some leads, but lost in a local hard drive crash here.)

On the hghway issues, one can't forget the "engine" behind it was a prominent political figure, with a known enmity towards a conspicuous transport workers union. One in the industry critic, told to me the Congressional Hearings were little more than "show trial" affairs, and the verdict was already in. I also heard statements there was much blame to be placed on the over educated, "wet behind the ears" grads of celebrated B- Schools. These eager types were vocal proponents, and had to prove everything they knew. Amazingly, none had ever picked up a piece of freight, far as anyone else knew........

...............Vern................

[Rob Archer]

Vern: Is your noted political figure the guy who went by the initials of RFK?
He was at war with JRH was he not?
I always wondered why dereg was pushed through on Carter's watch. I thought the party of the Mule was more sympathetic towards government oversight.
The reason I recall was "Energy Efficiancy" (boy did I ever mis spell that word). It was disclosed that trucks were being forced to run all over the country instead of directly from A to B due to the requirements of various licenses.
Trucks...Car Haulers were a prime example, would be forced to run empty for vast distances "wasting" scarce fuel doing so. I don't recall anyone saying anything about all the boxcars with wide open doors on the trains.
Was trucking deregulated with the railways?

Every railway (railroad in the USA Chris) always reported that merging their operations would remove X number thousand trucks from the nation's (USA) highways since the merged railways would be so much more efficient.

I think the CN - BNSF proposal was just too much for the regulators to stomach.

[Chris_E]

You pretty much nailed what I found, Rob.  According to my research, I found there were lots of empty miles, disputes of who could haul what, and a lot of inefficiency due to rights of where carriers could run.  I also found a lot of the transportation industries (truck-air-rail) were all deregulated at about the same time.

[hwyhaulier]

You pretty much nailed what I found, Rob.  According to my research, I found there were lots of empty miles, disputes of who could haul what, and a lot of inefficiency due to rights of where carriers could run.  I also found a lot of the transportation industries (truck-air-rail) were all deregulated at about the same time.

Chris - Rob -

The "empty miles" nonsense was grossly overstated, and fitted needs of the demagogues (who were completely ignorant of the fine points of freight).
For instance. Well, what does one do with an empty car hauling trailer, after delivery at Cedar Rapids, IA? There's a new car assembly plant, "down
the street"? Else. Go home empty. What else is new? It's all in the rates, anyway...

The other, truckload especially, nonsense of out of route "tacking" thru gateway points. So, whose fault was that? These were the whines of carriers
who believed they needed to compete with the lines which held direct, point to point routings. That, too, was nonsense. If the "circuity" bothered them
that much, then, don't take the load!

Guide to nit picky language stylings in American English. This writer submits "railway" and "railroad" are both good usage. "Railway" term, however,
largely seen when a "Railroad" has had a financial reorganization, among other possibilities...

Personalities? Hint: Look for leads in the Bay State. I think we all know who we are talking about here, when we refer to a colorful  labor leader...

....................Vern................