Buffett bets on recovery as he buys railway firm for $26bn
Warren Buffett's Berkshire Hathaway group has disclosed stakes in a number of company's.
Wednesday November 04 2009
Warren Buffett's Berkshire Hathaway has agreed to buy railway firm Burlington Northern Sante Fe in the the company's biggest takeover as he bets on a recovery in the US economy.
Mr Buffett's firm will pay $26bn (€17.7bn), or $100 a share in cash and stock, for the 77.4pc of the railroad it doesn't already own.
Including his previous investment and the assumption of debt, the value of the deal is about $44bn, the company said in a statement yesterday.
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," Mr Buffett said in the statement.
Berkshire has been building a stake in the Texas-based railroad for more than two years as Mr Buffett looked for what he called an "elephant"-sized acquisition in which he could deploy his company's cash hoard, valued at more than $24bn as of the end of June.
Trains stand to become more competitive against trucks with fuel prices high, he has said.
"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." At $100 a share, Mr 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 13pc in the 12 months through yesterday.
Earnings
The deal culminates a search by Mr Buffett (79) that sent him to Europe looking for possible acquisitions and lamenting in letters to shareholders that he and vice chairman Charles Munger couldn't find companies they considered large enough to meaningfully add to annual earnings.
Buffett needs "elephants in order for us to use Berkshire's flood of incoming cash", he said in his annual letter to shareholders in 2007. "Charlie and I must therefore ignore the pursuit of mice and focus our acquisition efforts on much bigger game."
Buffett will use $16bn in cash for the deal, half of which is being borrowed from banks and will be paid back in three annual installments, he told the CNBC television network. (Bloomberg)
Irish Independent
