Berkshire prepares for 50-for-1 split of Class B shares in bid to help stock join indexes

Berkshire prepares to split B-shares 50-for-1

OMAHA, Neb. — Warren Buffett’s Berkshire Hathaway Inc. is getting ready to split the company’s Class B shares next Thursday as part of its plan to buy Burlington Northern Santa Fe Corp.

The 50-for-1 stock split, which shareholders will vote on Wednesday, will boost the liquidity of Berkshire’s stock, and enable Berkshire to offer even small BNSF shareholders Berkshire stock as part of its $26.3 billion cash and stock deal.

The added liquidity Berkshire will have as a result of the split will also increase the chances that the Omaha-based company will join the S&P 500 index. Berkshire’s Class A shares, which are the nation’s most expensive stock, and its Class B shares have been difficult to trade because of their high prices.

Berkshire’s Class A shares, which sold for $97,500 Friday, are not being split.

Class B shares, dubbed “Baby Berkshires,” were first issued in 1996 to meet demand from smaller investors and discourage investment firms from reselling pieces of Berkshire’s original shares — which became the Class A shares.

Buffett declined to discuss the stock split Friday, ahead of Wednesday’s special shareholder meeting in Omaha. Berkshire’s board has said in documents sent to shareholders that it supports the split regardless of the BNSF deal.

Next week’s split will make the $3,247 Class B shares significantly more affordable: They will be worth $64.94 apiece. That will take the B shares from 1/30th the value of a Class A share to 1/1,500th of Berkshire’s Class A shares.

“Now everybody will have access to it,” said Andy Kilpatrick, the stockbroker-author who wrote “Of Permanent Value: The Story of Warren Buffett.”

The fact that the split may lead to inclusion in the S&P 500 is also significant because so many investors rely on it as a barometer for the economy. For years, Buffett has measured Berkshire’s annual performance against the index in his letter to shareholders.

Being included would also generate new investment in Berkshire because trillions of dollars mirror moves in the index, and many funds buy stock in the companies in it.

A Standard & Poor’s committee decides which companies to include in the S&P 500 based on a number of different criteria. Spokesman David Guarino declined to comment on the prospect of Berkshire joining the index, but he did explain the factors S&P considers.

Berkshire’s market capitalization of $151 billion would easily exceed S&P’s requirement that a company be worth at least $3.5 billion in the eyes of the stock market. But in the past, Berkshire has been left out of the index because its shares have been cumbersome to trade. S&P uses a formula comparing the dollar value of stock traded to a company’s market capitalization to evaluate liquidity.

Buffett’s charitable plans are another factor that will increase the number of Class B shares available to trade in the future. Buffett has pledged to convert all his Berkshire holdings to B shares and donate them to charity over time. Buffett pledged in 2006 to gradually give 10 million B shares to the Gates Foundation, 1 million B shares for the Susan Thompson Buffett Foundation named in honor of his deceased first wife, and 350,000 shares for each of the three foundations run by his three children.

Morningstar analyst Bill Bergman said any company that gets added into the S&P 500 always sees a boost in its stock, but he thinks many investors have already factored that into Berkshire’s shares. So becoming part of the S&P 500 may not mean much to Berkshire’s share price.

“It’s an interesting development, but as far as the value of the shares go, it doesn’t mean much,” Bergman said.

The Class B split was a key part of the BNSF deal when it was announced in December. Berkshire agreed to pay $100 per share in cash and stock for the 77.4 percent of BNSF shares that it didn’t already own. The purchase will be the largest ever for Buffett’s company.

Berkshire and BNSF have said they expect the deal to close in the first quarter, and the Ft. Worth, Texas, railroad has scheduled a Feb. 11 shareholder vote on it.

Berkshire expects the majority of the shares issued in the $100-per-share deal will be Class A shares, but holders of smaller amounts of BNSF shares who opt for a share exchange rather than cash will receive Class B shares. Having smaller B shares will enable Berkshire to complete the deal without splitting many shares.

If both Berkshire’s and BNSF’s shareholders approve, Berkshire will become the owner of the nation’s second-largest railroad. BNSF hauls grain, coal and consumer products across 32,000 miles of track in 28 western states and two Canadian provinces.

Berkshire already owns more than 60 subsidiaries, including clothing, furniture, jewelry and corporate jet firms, but its insurance and utility businesses typically account for more than half of the company’s revenue. It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.

On the Net:

Berkshire Hathaway Inc.: www.berkshirehathaway.com

Burlington Northern Santa Fe Corp.: www.bnsf.com