Warren Buffett’s Berkshire to buy Burlington Northern for $34 billion
(The following appeared on the New York Times website on November 3, 2009.)
NEW YORK — Berkshire Hathaway, the investment vehicle of Warren E. Buffett, said on Tuesday that it plans to buy the 77.4 percent of Burlington Northern it doesn’t already own for $34 billion in cash and stock, in the largest deal in Berkshire history.
The deal, which will also include the assumption of $10 billion in Burlington Northern debt, represents what Mr. Buffett said was a big bet on the United States. He told CNBC in an interview that railroad operators cannot do well unless American businesses are producing goods and customers are buying them.
“It’s an all-in wager on the economic future of the United States,” he said in a written statement. “I love these bets.”
In an interview on CNBC, Mr. Buffett said that the deal came together quickly last week, when he made a proposal to Matthew K. Rose, Burlington Northern’s chairman and chief executive. Mr. Rose took the proposal to his board — and got an answer in about 15 minutes.
“We are thrilled to have the opportunity to become a part of the Berkshire Hathaway family,” Mr. Rose said in a statement. “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 U.S. transportation infrastructure.”
Under the terms of the deal, Berkshire will pay about $100 per Burlington Northern share, a price comprised of about 60 percent in cash and 40 percent in stock. Berkshire deals historically have almost never used stock, but Mr. Buffett told CNBC that Burlington Northern wanted a tax-free component for their shareholders.
As part of the deal, Berkshire will split its class B shares 50-to-1 to help pay for the acquisition. It’s an unusual move for Mr. Buffett, who has long said he does not like stock splits.
Of the $16 billion in cash for the deal, Berkshire plans to use $8 billion on its books and $8 billion borrowed from banks, which will be repaid in three annual installments. After the deal, Berkshire will have $20 billion in cash on hand.
“I like cash,” Mr. Buffett said.
The Burlington deal is the largest for Mr. Buffett since he agreed nearly two years ago to acquire control of Marmon Holdings, the industrial holding company of the Pritzker family, for an initial price of $4.5 billion.
Burlington Northern was advised by Goldman Sachs, Evercore Partners and the law firm Cravath Swaine & Moore. Berkshire was advised by the law firm Munger, Tolles & Olson.
Tuesday, November 03, 2009
