Berkshire Hathaway (BRKA) CEO and value investing demigod Warren Buffett has been hinting for some time that he was looking for a large company to buy with Berkshire's huge cash hoard, which stood at about $21 billion at the end of the second quarter. Last year he described his likely targets as "big ones, elephants." On Nov. 3, Buffett bagged a good-sized pachyderm, paying $34 billion—$44 billion, including debt—for sole ownership of Fort Worth (Tex.)-based Burlington Northern Santa Fe Corp. (BNI), the second-largest U.S. railroad.
The deal is the biggest acquisition in Berkshire's history and, in Buffett's words, "an all-in wager on the economic future of the United States." In a statement, Burlington Northern CEO Matthew Rose added: "We admire Warren's leadership philosophy supporting long-term investment that will allow BNSF to focus on the future needs of our railroad." Pending an antitrust review by the Justice Dept. because Berkshire has smaller stakes in other railroads, the deal is expected to close early next year.
Berkshire has been eyeing freight trains for some time. In 2006, the company bought a 10.9% stake in Burlington Northern, later increasing its holding to 22%. On Tuesday Berkshire bought the rest of the company for $100 a share in cash and newly issued Berkshire Hathaway stock. About $16 billion of the purchase price is in cash, half of it coming from Berkshire's coffers and the other half borrowed from banks. The price represents a roughly 30% premium over Burlington Northern's New York Stock Exchange closing price on Monday. Berkshire also agreed to assume $10 billion in outstanding Burlington Northern debt.
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