Wednesday, November 4, 2009
Berkshire Buys Burlington in Buffett’s Biggest Deal
Warren Buffett’s Berkshire Hathaway agreed to purchase Burlington Northern Santa Fe Corp for $26 billion, which will be the largest purchase for Berkshire. Basically, Warren took advantage of the soft market when competitive bids were relatively low. Burlington Northern would be Berkshire’s second- largest operating unit by sales. Buffett will use $16 billion in cash for the deal, half of which is being borrowed from banks and will be paid back in three annual installments.
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BNSF is the company that would fit perfectly into Buffet's investment philosophy. BNSF's value lies in the railroad tracks that it owns. For someone to replicate such an extensive network would be costly, and impossible due to property owner objections (who likes a railway track in their backyard). Also, Buffet expects that the US economy will ultimately recover, and demand for goods rebound. In a nutshell, Buffet bought a company wide a wide moat for an attractive price.
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