Buffett Saves Berkshire Hathaway $20 Million with the Puts on Burlington Northern Santa Fe

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Feb 03, 2009
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Buffett Saves Berkshire Hathaway $20 Million with the Puts on Burlington Northern Santa Fe

2.3 million shares of Burlington Northern Santa Fe (NYSE: BNI) was put to Berkshire Hathaway at the strike price of $75 a share on Jan. 30. Now all the BNI put options Warren Buffett sold have been exercised.

Berkshire had a 1.8% loss with the Jan. 30 BNI puts compared with the market close prices. Since Oct. 2008 we have made a series of reports on Buffett’s put sales. Warren Buffett sold a total of 7.8 million shares of puts on BNI. Now all of these put contracts have been exercised.

Berkshire spent a net of $548.7 million on these 7.8 million BNI shares. If bought in open market at market close prices on the days the puts were exercised, Berkshire’s cost would have been $569.4 million. Warren Buffett saved about $20 million or 3.8% on these BNI shares.

With these purchases Berkshire Hathaway now controls 76,777,029 shares of Burlington Northern, which is more than 22% of total shares outstanding. There is speculation that Buffett may take BNI private. (See: What if Buffett takes BNI private - good or bad for the rest of us?)

Today BNI is traded at around $65, a 3-year low. Although Buffett made small profit with the put sales, he still has at least 15% of paper loss with this BNI shares. If you buy BNI today, you are better positioned than Buffett to make money on Burlington Northern Santa Fe.

This is the summary of the puts sale of Warren Buffett :

Derivative SecurityExercise PriceTransaction DateShares soldDate ExercisablePriceShare Cost if ExecersedPrice on Date of Exercise (close)Option Gain
Put Option (obligation to buy)$75 12/3/20082,325,0001/30/2008$6.35 $68.65 $ 67.42 -1.8%
Put Option (obligation to buy)$76 10/16/20081,000,00012/19/2008$6.20 $69.80 $ 74.68 7.0%
Put Option (obligation to buy)$75 10/10/20081,217,50012/12/2008$7.09 $67.91 $ 74.68 10.0%
Put option (obligation to buy)$80 10/8/20081,190,47612/9/2008$7.03 $72.97 $ 75.20 3.1%
Put option (obligation to buy)$77 10/8/2008761,11112/9/2008$5.78 $71.22 $ 75.20 5.6%
Put option (obligation to buy)$80 10/6/20081,309,52412/8/2008$7.02 $72.98 $ 76.55 4.9%
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