Buffett’s Berkshire Hathaway completes BNSF railroad deal for nearly $27B in cash and stock

Berkshire completes acquisition of BNSF railroad

OMAHA, Neb. — Warren Buffett’s company completed its largest acquisition ever Friday when it bought Burlington Northern Santa Fe Corp.

Berkshire Hathaway Inc. also joined the S&P 500 and S&P 100 stock indexes after Friday’s close of the markets because as part of the BNSF deal, the Omaha-based company gained liquidity by issuing new shares and splitting its Class B shares 50-for-1. The deal also created an opening in the S&P indexes because Berkshire bought one of the nation’s largest railroads.

The stock index news helped Berkshire’s stock post significant gains since it was announced Jan. 26.

Berkshire Hathaway Inc. paid roughly $100 per share in cash and stock for the 77.4 percent of BNSF shares that it didn’t already own.

Burlington Northern shareholders, who controlled about 70 percent of the shares Berkshire didn’t already own, voted Thursday to support the deal. That vote was the last hurdle for the deal.

Railroad shareholders had a choice between receiving Berkshire stock or cash, but the deal was structured to ensure that about 60 percent of the purchase price would be paid in cash with the rest paid in Berkshire stock. Berkshire said Friday BNSF shareholders will receive roughly $15.87 billion in cash, 80,932 Class A and 21 million Class B shares of Buffett’s company.

On Friday, Berkshire’s A shares closed at $114,000, and the B shares finished the week at $76.90. The A shares are up 12 percent since S&P announced plans to add Berkshire to its stock indexes, and the B shares have gained 13 percent.

Buffett has said he expected Berkshire to benefit from joining the S&P indexes because being part of the indexes gives the company ready buyers for about 6 percent of its shares. That happens because many investment funds buy stock in the companies in the S&P indexes to mirror its moves. And those mutual fund buyers would plan to hold the stock long-term, which is what Buffett wants.

Standard & Poor’s chose Berkshire to replace Burlington Northern in the indexes after Berkshire split its Class B shares as part of its plan to acquire the Fort Worth, Texas-based railroad. In the past, Berkshire had been left out of the indexes because its high-priced shares were cumbersome to trade.

Berkshire shareholders agreed to split the company’s Class B stock 50-for-1 last month, and that move gave Buffett’s company enough liquidity to meet S&P’s criteria for the indexes.

Berkshire’s closing stock prices Friday push the value of the deal up to roughly $26.7 billion. Previous estimates valued the deal at $26.3 billion.

Before BNSF, Berkshire’s biggest acquisition was the $16 billion stock purchase of reinsurance giant General Re in 1998.

Berkshire owns nearly 80 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