Berkshire takes $2.25bn dividends from acquisition
Warren Buffett's Berkshire Hathaway took $2.25bn (€1.6bn) in dividends from Burlington Northern Santa Fe in less than 13 months of ownership, almost triple the railroad's payout rate prior to the February 2010 acquisition.
Burlington Northern paid a $1bn dividend last month, it said on February 28. The railroad held by Berkshire's National Indemnity insurance unit paid $1.25bn last year under Mr Buffett. The $2.25bn total compares with $772m that Burlington Northern handed to stockholders in the 13 months prior to being acquired by Mr Buffett's firm.
Mr Buffett is withdrawing cash from Burlington Northern after taking on $8bn of debt to help finance the acquisition.
Burlington Northern's publicly traded rivals have raised their dividends and restarted share repurchases as earnings advanced across the industry. The dividends may reassure rival stockholders that Berkshire's entrance into the market won't put their railroads at a disadvantage, said Walter Spracklin, an analyst with RBC Capital Markets.
"I did indeed get questions as to whether Burlington Northern would be at a capital advantage as a privately owned entity," said Mr Spracklin, who covers railroads from Toronto.
"This would suggest that it's certainly not the case."
Union Pacific paid dividends of $602m and repurchased $1.25bn of shares in 2010 as it posted $2.78bn profit. In 2009, dividends were $544m, and the company reported no buybacks on its repurchase plan.
Burlington Northern didn't buy shares on its repurchase programme in 2009.
Mr Buffett is adding to a cash position at Berkshire that ended December at $38.2bn, its highest since year-end 2007. The company, which doesn't pay a dividend to shareholders or buy back stock, is seeking acquisitions and facing payments on debt it issued last year in connection with the $26.5bn railroad buyout. Burlington Northern's profit gained 43pc to $2.46bn last year.
"We expected BNSF to dividend the free cash flow to Berkshire to repay some of the acquisition-related debt," Anita Ogbara, a credit analyst at Standard & Poor's, said in an interview. "The level of shareholder rewards, and by that I mean dividends and share repurchases, is still in line" with publicly traded railroads, ms Ogbara said.
Mr Buffett, Berkshire's chairman and chief executive officer, called the Burlington Northern takeover the "highlight of 2010". The 80-year-old billionaire said Berkshire spent $6bn last year on property and equipment and predicted the company's capital spending will swell to a record $8bn in 2011.
Burlington Northern used a net $3.1bn of cash last year for investments including equipment, up from $2.64bn in 2009. The unit said last month it plans $3.5bn in capital spending this year.
Berkshire slipped $694.01, or 0.5pc, to $128,844 at 9.40am in New York Stock Exchange composite trading yesterday. (Bloomberg)