Warren Buffett's Berkshire Hathaway announced today that it is buying the remaining shares of Burlington Northern Santa Fe Corp. (BNI) that it does not already own, a $44 billion transaction that is the largest in Berkshire's history.
Berkshire, which already owned 22.6 percent of Fort Worth, Tex.-based Burlington Northern before today's announcement, will pay $100 a share for the remaining 77.4 percent. The deal includes Berkshire acquiring $10 billion worth of BNSF debt.
"Our country’s future prosperity depends on its having an efficient and well-maintained rail system,” Buffett said in a statement. "Conversely, America must grow and prosper for railroads to do well. Berkshire’s $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry. Most important of all, however, it’s an all-in wager on the economic future of the United States. I love these bets.”
Rose said: “We are thrilled to have the opportunity to become a part of the Berkshire Hathaway family. 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. This transaction offers compelling value to our shareholders and is in the best interests of all of our constituents including our customers and employees.”
Each share of BNI will be converted to either a cash payment of $100 (a roughly 33 percent premium to where it's been trading lately) or Berkshire stock.
To accommodate smaller shareholders of BNI and allow for a tax-free transaction, Berkshire's board today also announced a 50-for-1 split of Berkshire's Class B common stock. That would bring down the class B shares to a little more than $60 a share, which should increase the stock's liquidity and perhaps someday make it more likely that the stock will be in the Standard & Poor's 500.
Berkshire's Class A shares are not being split. Most of the shares being issued for the transaction are "A" shares.
The transaction requires approval by holders of two-thirds of BNI’s outstanding shares (other than shares held by Berkshire Hathaway), and customary closing conditions, including Department of Justice review. Closing is expected to occur during the first quarter of 2010.
I wrote recently about the strategic value that BNSF has to Berkshire Hathaway's energy portfolio. Click here to read that.
Disclosure: Long BNI and BRKB