Berkshire Hathaway Buying Burlington Northern - Mergers and Aquisitions * US * News * Story

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Berkshire Hathaway Buying Burlington Northern

Published: Tuesday, 3 Nov 2009 | 10:13 AM ET

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By: CNBC.com and AP

In its largest acquisition to date, Berkshire Hathaway said Tuesday it will acquire the 77 percent stake in Burlington Northern Santa Fe that it doesn't already own for $100 a share in cash and stock.

The transaction is valued at $26 billion, that values the entire company, including the stake Berkshire already owns, at $34 billion.

The deal has been approved by the boards of both companies. It would be the biggest acquisition ever for Berkshire Hathaway.

In a phone interview, Berkshire CEO Warren Buffett told CNBC Tuesday that the deal with Burlington came together fairly quickly. But he said that he's unlikely to buy Union Pacific [UNP Loading... () ], another railroad company he has invested in previously. (See video below for full interview with Buffett)

“[Burlington Northern] [BNI Loading... () ] does it in a very cost-effective way and they do it in an extraordinarily environmentally friendly way," Buffett said. "BNSF last year moved on average a ton of goods 471 miles on one gallon of diesel and it releases far fewer pollutants into the atmosphere. It saves enormously on energy consumption and it diminishes highway congestion."

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"I believe this country will prosper and will have more people moving more good 10 to 30 years from now and the rails should benefit, but it’s a bet on the country,” Buffett added. "Over time, I think you will see more goods be moved more miles over the rails."

Berkshire [BRK.A Loading... () ] said it expects the deal to close in the first quarter of 2010.

Berkshire Hathaway already owns about 22 percent of Burlington Northern, and said it will pay $100 a share in cash and stock for the rest of the company, a 31.5 percent premium on Burlington Northern's Monday closing price.

Shareholders have the option to convert their stock for a cash payment of $100 per share or receive Berkshire Class A or Class B common stock. Up to 60 percent of the deal is cash and 40 percent is in stock.

The majority of the stock in the deal will be Berkshire's "A" shares, but Berkshire's board also approved a 50-for-1 split of its Class B [BRK.B Loading... () ] common stock for holders of smaller amounts of Burlington shares who opt for a share exchange rather than cash.

“I’m not big on stock splits, but by having this split, it enables anybody with as little as one share of BNSF to opt for the tax-free exchange,” said Buffett. “So the small shareholder can have the exactly the same availability that otherwise would only have been available to a big shareholder.”

Berkshire's Class B shares closed Monday at $3,265. With the split, each share will be worth $65.30. Burlington shares closed Monday at $76.07. The shares shot up 29 percent to $98.13 in premarket trading. Shares of other major rails rose as well.

Buffett, one of the world's richest men and and one of its most revered investors, is known for making big long-term bets. He wrote in The New York Times in October 2008 that he had been buying American stocks in his personal account, a few weeks after the collapse of Lehman Brothers set off worldwide selling.

What Buffett's BNI Buy May Mean for Other Rail Stocks

"Fears regarding the long-term prosperity of the nation's many sound companies make no sense," Buffett wrote at the time.

Berkshire also owns MidAmerican Energy Holdings, which controls power companies in the Midwest and Pacific Northwest. The railroad could be a strategic acquisition because its tracks run right through both regions, a major coal supply route for power plants.