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Berkshire Hathaway and Burlington Northern Final Merger Terms Announced

February 13, 2010 | About:
Berkshire Hathaway has announced the completion of the company’s acquisition of Burlington Northern Santa Fe. In addition, Berkshire has announced the final results of the merger consideration to be paid to Burlington shareholders.

As documented in the proxy statement, Burlington shareholders were able to elect to receive either $100 in cash per share or a certain number of Berkshire shares. The number of shares was determined by the daily volume-weighted average trading prices per share of Berkshire Hathaway Class A common stock over the ten day period ending February 10.

Final Terms

At the effective time of the merger, there were 264,507,424 shares of Burlington Northern outstanding, excluding the shares that were owned by Berkshire and its subsidiaries. Berkshire announced the following breakdown between shareholders electing cash, stock, or indicating no preference:

BNIElections.png

Not all of the Burlington shares where stock elections were made could be paid fully in stock due to the terms of the proxy which dictated a final mix of 60% cash and 40% stock. Burlington shareholders who indicated a preference for cash or no preference received all consideration in cash.

Price of Berkshire Shares Issued

One major unknown variable that has concerned many Berkshire Hathaway shareholders in recent weeks was the effective price of Berkshire Hathaway shares that will be issued in the transaction. We now have the answer. To satisfy the stock portion of the transaction, Berkshire indicates that the company will issue 80,932 shares of Class A stock and approximately 21 million shares of Class B stock. The calculation of the effective price per share is as follows:

EffectivePricePaid.png

Although Berkshire Hathaway stock has rallied over the past two days in anticipation of being added to the Standard & Poor’s 500 index, the effective price per share is lower since it is the average of the daily volume weighted trading price of Berkshire over the ten days ending on February 10.

Another way of looking at this is to consider what a Burlington Northern Santa Fe shareholder would receive if electing to receive stock for one share of BNI. Such a shareholder would receive $7.75 in cash due to the proration described above. In addition, the shareholder would receive approximately 1.2416 shares of Berkshire Hathaway Class B. At the effective price of $74.30 per B share, this works out to exactly $100.

Resources

For a spreadsheet with calculations of the final terms of the merger based on Berkshire’s press release, please select either the Excel 2007 or Excel 2003 link below.

Excel 2003 Spreadsheet

Excel 2007 Spreadsheet

Disclosure: The author owns shares of Berkshire Hathaway.

Ravi Nagarajan

http://www.rationalwalk.com

About the author:

Ravi Nagarajan
Jonathan holds an MBA from the Richard Ivey School of Business at the University of Western Ontario where he studied value investing with Dr. George Athanassakos (Ben Graham Chair in Value Investing). Jonathan has a passion for finance and investing that radiates from the writings on this site. Visit his blog.

Visit Ravi Nagarajan's Website


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