Warren Buffett

Buffett is buying up Burlington Northern (BNSF), an historic railroad.

Check out their website. BNSF describes itself as the product of 390 different railroad lines that have come together under the same corporate roof over a period of 150 years. Among them: the Northern Pacific, the Great Northern, and the Santa Fe. It has 32,000 route miles through 28 states, and two Canadian provinces. That's impressive infrastructure, especialy if one happens to be a grandson of Henry Comstock.

Anyway, Buffett's holding company, Berkshire Hathaway, is paying $100 a share for those shares of BNSF it doesn't already own, and (this is the surprise, given Buffett's known predispositions) it is doing so with a combination of cash and stock.

Why is there a stock-swap component to this deal? In his annual letter to shareholders, issued Friday, Feb. 26, Buffett said: "The reason for our distaste is simple: If we wouldn't dream of selling Berkshire in its entirety at the current market price, why in the world would we 'sell' a sigificant part of the company at that same inadequate price by issuing our stock in a merger?"

Good question. After some heming and hawing, WB gets around to the answer. Sort of.

"In the end, Charlie and I decided that the disadvantage of paying 30% of the price through stock was offset by the opportunity the acquisition gave us to deploy $22 billion of cash in a business we understood and liked for the long term. It has the additional virtue of being run by Matt Rose, whom we trust and admire. We
also like the prospect of investing additional billions over the years at reasonable rates of return. But the final decision was a close one."

Aaaah. Well, if Matt Rose is running the railroad, then swapping BRK for BNSF makes perfect sense!

In the words of Felix Salmon, "The letter does make it seem that it's a lot easier to argue against the BNSF acquisition than it is to argue for it."