Berkshire Buys Burlington Northern

Warren Buffett's Berkshire Hathaway (BRK.A - Analyst Report) said on Tuesday that it is acquiring Burlington Northern Santa Fe Corp (BNI - Analyst Report) for $44 billion. This is the biggest acquisition ever for Berkshire Hathaway.

With this acquisition, Berkshire Hathaway is adding the railroad transportation business to its already diverse range of businesses including retail sales, insurance and financials, newspaper publishing, manufacturing, business services and several regional electric and gas utilities.

Berkshire Hathaway, which already owns 22.0% stake in Burlington Northern, has offered $100 per share in cash and stock for the remaining portion of the holding.

The transaction which is contingent on approval by two-thirds of Burlington’s outstanding shareholders is expected to close by first quarter of 2010. Burlington Northern will continue operating from its Fort Worth, TX headquarters.

Berkshire Hathaway also announced that its Class B common share (BRK.B - Snapshot Report) will be split off into 50 for 1. This is being done to compensate small holders Burlington Northern shares who opt for a share exchange rather than a cash payment, though it intends to compensate mostly by issuing Class A shares.

In its third quarter results announced last month, Burlington Northern earned $488 million or $1.42 per share, compared with $695 million or $1.99 per share at the same period last year. The company had been facing depleting volumes because of the economic downturn, causing lower demand for its shipped goods.

Berkshire's CEO, Warren Buffett, is respected for his investment prowess and his deep understanding of a wide spectrum of businesses. Extensive sources of capital are required to establish new rail networks, purchase cars and locomotives. This acquisition of Burlington Northern will enable the company to focus on its future expansion and operational needs.

Burlington Northern operates one of the largest railroad networks in North America, with 33,500 route miles covering 28 states and two Canadian provinces. This network covers the western two-thirds of the United States, stretching from major Pacific Northwest and Southern California. The company employs more than 40,000 people.