Berkshire buys Burlington Northern

In a move he said reflects his long-term faith in the nation's economic system, Omaha investor Warren Buffett plans to buy Burlington Northern Santa Fe Corp. in a $44 billion transaction.

It would be the biggest acquisition in the history of Berkshire Hathaway Inc., the investment company Buffett heads.

And although BNSF would continue to be operated from Fort Worth, Texas, the purchase and the presence of Union Pacific Corp. in Omaha would make Nebraska a sort of national rail capital.

“Our country's future prosperity depends on its having an efficient and well-maintained rail system,” Buffett said in a press release issued this morning. “Conversely, America must grow and prosper for railroads to do well."

Berkshire's $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose, his team and the railroad industry.

“Most important of all, however, it's an all-in wager on the economic future of the United States. I love these bets,” Buffett said.

Besides the $34 billion in cash and stock to be paid for the railroad, Berkshire also would assume about $10 billion in BNSF debt, bringing the total to $44 billion.

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 common stock for holders of smaller amounts of Burlington shares who opt for a share exchange rather than cash. 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.

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

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.

Burlington Northern Santa Fe is the country's second-largest railroad with a market capitalization the market value of the company's outstanding shares of about $25.9 billion.

Burlington is a major presence in Nebraska, employing more than 4,000 people and operating hundreds of miles of main-line track across the state including coal trains from Wyoming to power plants in the Midwest and East.

Buffett has expressed confidence in BNSF in the past, purchasing its stock regularly over the past several years.

Buffett's offer would give BNSF shareholders a big payday, since the share price closed at $76.02 each Monday. Directors of both companies said they had reached a definitive agreement on the sale,

Rose, chairman, president and CEO of BNSF, said the company is "thrilled to have the opportunity to become a part of the Berkshire Hathaway family. We admire Warren's leadership philosophy supporting long-term investment that will allow BNSF to focus on future needs of our railroad, our customers and the U.S. transportation infrastructure."

Shareholders can choose to receive either $100 per share or part of the payment in Berkshire stock. For the sale to take place, two-thirds of BNSF's shares would have to vote in favor of the sale. The two parties said they expect the sale to close by the end of March 2010.

Berkshire will schedule a special shareholders meeting to vote on the stock split, but Berkshire doesn't need shareholder approval to purchase the railroad company.

The sale also is subject to approval by the U.S. Justice Department, which reviews such purchases in light of anti-trust laws intended to prevent monopolies. Berkshire also owns stock in Union Pacific, raising the question of whether it would have to sell those holdings to keep ownership of the two competing railroads separate.

-- This report contains information from The Associated Press