Buffett takes biggest ever punt on US freight railway

Berkshire Hathaway offers $34bn for BNSF
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The Independent Online

Warren Buffet is making what he calls "an all-in wager on the economic future of the United States" with a $34bn (£21bn) offer for Burlington Northern Santa Fe (BNSF), the country's second highest-grossing freight railway company.

The bid – which includes $10bn-worth of debt – values BNSF at $44bn and is the biggest deal ever for Berkshire Hathaway, the investment company run by Mr Buffett, who has been dubbed the "Sage of Omaha" for his extraordinarily successful track record.

The rationale for the BNSF bid is that the future prosperity of the US depends on an efficient rail system, while at the same time the country must prosper for the railways to do well, Mr Buffett said yesterday.

"Berkshire's $34bn investment in BNSF is a huge bet on that company, chief executive Matt Rose and his team and the railroad industry," he said. "Most important of all, however, it's an all-in wager on the economic future of the United States. I love these bets."

The takeover bid comes after several years of stake-building that saw Berkshire Hathaway break through the 20 per cent mark earlier this year.

Under the terms offered yesterday, Mr Buffett's group will pay $100 per share in cash and stock for the 77.4 per cent of the company it does not already own – a 31 per cent premium on Tuesday's closing price.

Shareholders will receive 60 per cent of the payment in cash and the remaining slug in Berkshire Hathaway shares, which were trading at $99,780 each yesterday afternoon. The plan also includes a "collar" arrangement under which the number of Berkshire shares will vary if the price fluctuates beyond a band from $80,000 to $120,000.

The deal needs to be approved by both two-thirds of BNSF's non-Berkshire shareholders and a Department of Justice review, but is expected to be signed in early 2010.

Mr Rose, the BNSF chairman and chief executive, said the company is "thrilled" to have the opportunity and that the transaction offers compelling value for shareholders. "We admire Warren's leadership philosophy supporting long-term investment that will allow BNSF to focus on future needs of our railroad, our customers and the US transportation infrastructure," Mr Rose said.

BNSF is one of the oldest US railway companies. It was founded in Texas in 1839 and now, after absorbing some 390 different railway lines, covers 32,000 miles of track and runs 220,000 freight cars.