Warren Buffett's Berkshire Hathaway will pay $26 billion to buy out railroad Burlington Northern Santa Fe Corp (BSNF) in what the billionaire investor called a bet on the US economy.
The deal, Buffett's biggest-ever acquisition, is priced at a premium of 31.5 per cent over BNSF's closing stock price on Monday and values the railroad at $34 billion.
"It's an all-in wager on the economic future of the United States," Mr Buffett said in a statement, adding that railroads are key to the US economy and will benefit as recovery takes hold. "I love these bets."
To help ease the way for the deal, Berkshire's board approved a 50-for-1 split of the company's Class B common stock, its first split ever under Mr Buffett.
Berkshire will pay $100 per share in cash and stock for the 77.4 per cent of BNSF shares it does not already own. Berkshire will also assume $10 billion of BNSF debt. The deal is expected to close in the first quarter of 2010.
The deal comes as the US economy is beginning to recover from its worst downturn since World War II. US gross domestic product grew at a 3.5 per cent annual rate in the third quarter, the first quarterly growth in more than a year.
BNSF, which operates in the US West and Midwest, said in September it was seeing an uptick in freight volume and was encouraged by an improvement in consumer-related markets.
US railroads in recent years have invested in new technology and improved the efficiency of operations, while arguing their method of transport is cheaper and cleaner than shipping goods by truck.
Observers questioned whether Mr Buffett will have to sell his holdings in other railroads to win regulatory approval for the BNSF deal. Berkshire had a 1.9 per cent stake in Union Pacific Corp, or 9.56 million shares, as of June 30th, and a 0.5 per cent stake in Norfolk Southern Corp, or 1.93 million shares, according to Thomson Reuters data.
Reuters