Nov. 3 (Bloomberg) -- Berkshire Hathaway Inc. agreed to buy railroad Burlington Northern Santa Fe Corp. in the company's biggest takeover under Warren Buffett.
Buffett's firm will buy the 77.4 percent of the railroad it doesn't already own for $100 a share in cash and stock, valuing the transaction at about $44 billion, including $10 billion in outstanding debt, Omaha, Nebraska-based Berkshire said in a statement today distributed by Business Wire. That compares with the railroad's closing price yesterday of $76.07. "It's an all-in wager on the economic future of the United States," Buffett said in the statement. Berkshire has been building a stake in the Fort Worth, Texas-based railroad for more than two years as Buffett looked for what he called an "elephant"-sized acquisition in which he could deploy his company's cash hoard, valued at more than $24 billion as of the end of June. Trains stand to become more competitive against trucks with fuel prices high, he has said. "As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors, truckers, roughly by a factor of four," Buffett told shareholders in 2007 at his company's annual meeting. "There could be a lot more business there than there was in the past." At $100 a share, Buffett is paying 18.2 times Burlington's estimated 2010 earnings of $5.51, according to the average analyst projection in a Bloomberg survey. That compares with the 13.4 multiple for the Standard & Poor's 500 Index as of yesterday's close. Burlington Northern shares have dropped 13 percent in the past 12 months. `Warren Being Warren' "It is Warren being Warren, taking advantage of a market that is soft at a time when the possibility for competitive bids is relatively low," said Tom Russo, a partner at Gardner Russo & Gardner, which holds Berkshire shares. "He looks at this as a business that has advantages against other forms of transportation." Competing railroad Union Pacific Corp.'s ratio was 13, while Jacksonville, Florida-based CSX Corp.'s was 13.1, Bloomberg data show. Berkshire's board approved a 50-to-1 split of its Class B shares to help the acquisition, the company said. Goldman Sachs Group Inc., Evercore Partners Inc., and Cravath Swaine & Moore LLP are advising Burlington. Berkshire didn't disclose a financial adviser and said Munger Tolles & Olson LLP furnished legal advice. Burlington Northern operates 32,000 miles of track, with 6,700 locomotives, according to its Web site. Most of the carrier's network is west of the Mississippi, where it competes with Union Pacific. The company hauls cargo including grain, coal and so-called intermodal containers, which can move by a combination of rail, road and sea.
