$44B Transaction Gives Berkshire Hathaway Sole Ownership of BNSF

[wrawroacx]

http://sbj.net/main.asp?SectionID=18&SubSectionID=23&ArticleID=85743

[Ulrich]

Will be interesting to see what his friend Bill Gates does. He too has been investing in rail stock and has the ability to purchase a railroad..maybe CN.

[Mookie]

Since Mr. G and Mr B are friends, I think NS should be considered. 

[rstaller]

I don't like the idea of Buffet owning BNSF entirely.  Look at the trouble CSX has had with their investor, Children's Fund or whatever it's called.  Diverse ownership keeps corporate raiders from raping companies and walking.  I would hope BNSF employees wise up quickly and start taking any legal steps needed to protect their interests in the company.  Also if Bill Gates, decides to buy, oh lest say for the sake of argument, NS, then decides to sell it to Buffet, no permission is needed from the goverment, as it is not a merger, but a privately company being sold by one individual to another. WISE UP PEOPLE.  R. Staller

[Ulrich]

Berkshire Hathaway is the buyer..so Buffet won' be the owner...Buffet's has a stake in Berkshire Hathaway and will to that extent have a stake in BNSF...but that does not equate to Buffet owning BNSF.

Single person or entity ownership may not be a bad thing...after all..most businesses are owned by one person or a small partnership of individuals.  I am 100% owner of a business and from my vantage point that's not a bad thing. One owner...or a small group of owners.. can make decisions much more rapidly than a public company with investors who often need to be consulted on major decisions. This means that a smaller business can often turn on a dime and can run laps around a large company where decisions can take months to make.  BNSF may enjoy the benefits of a small concentrated ownership that is capable and can make decisions quickly. Your example of Childrens' Investment Fund isa good one and really illustrates what can go wrong when ownership and management interests aren't aligned. I don't think that will be a problem with Buffet at the helm.

 

[richg1998]

 I am amazed at how many people who do not read the forums and post the same story.

“This is all happening because my father didn’t buy me a train set as a kid,” Mr. Buffett said.

Rich

[garr]

rstaller

... Also if Bill Gates, decides to buy, oh lest say for the sake of argument, NS, then decides to sell it to Buffet, no permission is needed from the goverment, as it is not a merger, but a privately company being sold by one individual to another. WISE UP PEOPLE.  R. Staller

 

Both Berkshire and Microsoft are publicly traded companies. It is not the individual buying the railroad, just a conglomerate. 

 

Jay

[Paul_D_North_Jr]

Ulrich

  Berkshire Hathaway is the buyer..so Buffet won' be the owner...Buffet's has a stake in Berkshire Hathaway and will to that extent have a stake in BNSF...but that does not equate to Buffet owning BNSF.

Single person or entity ownership may not be a bad thing...after all..most businesses are owned by one person or a small partnership of individuals.  I am 100% owner of a business and from my vantage point that's not a bad thing. One owner...or a small group of owners.. can make decisions much more rapidly than a public company with investors who often need to be consulted on major decisions. This means that a smaller business can often turn on a dime and can run laps around a large company where decisions can take months to make.  BNSF may enjoy the benefits of a small concentrated ownership that is capable and can make decisions quickly. Your example of Childrens' Investment Fund isa good one and really illustrates what can go wrong when ownership and management interests aren't aligned. I don't think that will be a problem with Buffet at the helm.

Two aspects of this are worth noting - though they're somewhat related, because all of the ownership interests are held by the same entity, here Berkshire Hathaway / Buffett:

1. The eternal struggle/ tradeoff between long-term gain and short-term profits will be easier to resolve, because Berkshire/ Buffett doesn't have to consider/ look out for/ worry about any other BNSF shareholder's view.  Stated another way - he'll get whatever he decides, and has no one else to blame - and no one else can or will blame him for any the effect of any decision, or how it turns out.  It all comes out of/ goes into his wallet, and no one else's, so he's the best guy to decide what's best for it.

2.  In any other decision involving risk and prudence - such as an expansion, traffic, merger, share 'buy-back', political, economic, or environmental positions, Berkshire/ Buffett won't have to worry about being sued for trampling on or failure to properly perform his fiduciary duties to his fellow minority share-holders - because there simply aren't any.  It doesn't give him free rein to loot the company - but he can take risks that a corporate management might not otherwise because it wouldn't affect all stockholders equally, or that might result in serious losses.  Said differently, all of the risk/reward costs, benefits, contingencies, etc. will centralized and consolidated with Berkshire/ Buffett, who can then arrive at an optimum trade-off and balance among them, without having to consider the effects of a possible exposure to external liability, and the 'CYA' mentality such as over-design and other forms of excessive conservatism that often occurs as a result.  (There must be a formal name or description of this tendency, but I don't know what it is - at least not this late tonight.)

- Paul North.

[rstaller]

My point was, if Bill Gates, as an individual buys up NS, then decides to sell it, as a privately owned company(owned by Bill Gates, not MSN) there needs to be no approval by the STB to okay the sale.  A privately owned company can be bought and sold on a whim.  As a merger or acquistion by another rr, investigation is conducted by the STB to insure competion fairness, and give all concerned companies/individuals/etc the right to air those concerns pubically, and to okay or deny the sale/merger/acquistion upon those concerns.  Read your business law texts.  R. Staller

[Railway Man]

rstaller

I don't like the idea of Buffet owning BNSF entirely.  Look at the trouble CSX has had with their investor, Children's Fund or whatever it's called.  Diverse ownership keeps corporate raiders from raping companies and walking.  I would hope BNSF employees wise up quickly and start taking any legal steps needed to protect their interests in the company.  Also if Bill Gates, decides to buy, oh lest say for the sake of argument, NS, then decides to sell it to Buffet, no permission is needed from the goverment, as it is not a merger, but a privately company being sold by one individual to another. WISE UP PEOPLE.  R. Staller

Acquisition of control of two or more railroads by one person or entity is prohibited without the prior approval and authorization of the Surface Transportation Board.  See Public Law 104-88, 11323.  Privately held companies (as opposed to publicly listed and traded companies) are not exempt.  You can buy the first one without STB approval, but not the second.

RWM

 

[BNSFwatcher]

Well, you were off only $10 billion; " The valuation of BNSF Railway NYSE:  BNI) was $34 billion on 02 Nov 2009.  Berkshire Hathaway already owned about 22% of BNI, making the deal $26.3 billion for the un-owned shares.  Not enough to bail out Newark, or Detroit, or Chicago, but a lot of money, in my book.

Hays

[rstaller]

WRONG!!!!!!!!!!  If both companies are no longer publically traded, but privately owned, no okay by the STB is needed.  Privately owned companies,( not stocked traded publically) are not subject to the same sales laws.  Once the companies are removed from the stock exchange they are not open to public scrutiny, that's why privately owned companies do not have to publically report earnings, except to the IRS for taxing purposes.  Go to a person who owns a company, and demand to see his books, and he has every right, and is protected by commerce law, and basically can tell you to go pound salt.  R. Staller

[Railway Man]

rstaller

WRONG!!!!!!!!!!  If both companies are no longer publically traded, but privately owned, no okay by the STB is needed.  Privately owned companies,( not stocked traded publically) are not subject to the same sales laws.  Once the companies are removed from the stock exchange they are not open to public scrutiny, that's why privately owned companies do not have to publically report earnings, except to the IRS for taxing purposes.  Go to a person who owns a company, and demand to see his books, and he has every right, and is protected by commerce law, and basically can tell you to go pound salt.  R. Staller

 

I don't know about other companies, but I do know a little about the jurisdiction of the STB.  Here's the relevant section of Public Law 104-88, the ICC Termination Act of 1995:

‘‘§ 11323. Consolidation, merger, and acquisition of control
‘‘(a) The following transactions involving rail carriers providing
transportation subject to the jurisdiction of the Board under this
part may be carried out only with the approval and authorization
of the Board:
‘‘(1) Consolidation or merger of the properties or franchises
of at least 2 rail carriers into one corporation for the ownership,
management, and operation of the previously separately owned
properties.
‘‘(2) A purchase, lease, or contract to operate property of
another rail carrier by any number of rail carriers.
‘‘(3) Acquisition of control of a rail carrier by any number
of rail carriers.
‘‘(4) Acquisition of control of at least 2 rail carriers by
a person that is not a rail carrier.
‘‘(5) Acquisition of control of a rail carrier by a person
that is not a rail carrier but that controls any number of
rail carriers.
‘‘(6) Acquisition by a rail carrier of trackage rights over,
or joint ownership in or joint use of, a railroad line (and
terminals incidental to it) owned or operated by another rail
carrier.
‘‘(b) A person may carry out a transaction referred to in subsection
(a) of this section or participate in achieving the control
or management, including the power to exercise control or management,
in a common interest of more than one of those rail carriers,
regardless of how that result is reached, only with the approval
and authorization of the Board under this subchapter. In addition
to other transactions, each of the following transactions are considered
achievements of control or management:
‘‘(1) A transaction by a rail carrier that has the effect
of putting that rail carrier and person affiliated with it, taken
together, in control of another rail carrier.
‘‘(2) A transaction by a person affiliated with a rail carrier
that has the effect of putting that rail carrier and persons
affiliated with it, taken together, in control of another rail
carrier.
‘‘(3) A transaction by at least 2 persons acting together
(one of whom is a rail carrier or is affiliated with a rail carrier)
that has the effect of putting those persons and rail carriers
and persons affiliated with any of them, or with any of those
affiliated rail carriers, taken together, in control of another
rail carrier.
‘‘(c) A person is affiliated with a rail carrier under this subchapter
if, because of the relationship between that person and
a rail carrier, it is reasonable to believe that the affairs of another
rail carrier, control of which may be acquired by that person,
will be managed in the interest of the other rail carrier.

RWM

[Railway Man]

 

BNSFwatcher

Well, you were off only $10 billion; "  The valuation of BNSF Railway NYSE:  BNI) was $34 billion on 02 Nov 2009.  Berkshire Hathaway already owned about 22% of BNI, making the deal $26.3 billion for the un-owned shares.  Not enough to bail out Newark, or Detroit, or Chicago, but a lot of money, in my book.

Hays

 

Most financial sources put the value of the deal at $44 billion, not $26.3 billion, as BH also assumed $10 billion in debt and already held $8 billion in stock, so, in effect, BH is on the hook for $44 billion.

See, for example, 

http://dealbook.blogs.nytimes.com/2009/11/03/berkshire-to-buy-rest-of-burlington-northern-for-44-billion/

http://www.joc.com/node/414432

http://www.streetinsider.com/Mergers+and+Acquisitions/Buffett+Takes+A+Ride+On+the+Burlington+Northern+%28BNI%29+Railroad,+Announces+$44+Billion+Takeover/5068609.html

RWM

[Ulrich]

rstaller

WRONG!!!!!!!!!!  If both companies are no longer publically traded, but privately owned, no okay by the STB is needed.  Privately owned companies,( not stocked traded publically) are not subject to the same sales laws.  Once the companies are removed from the stock exchange they are not open to public scrutiny, that's why privately owned companies do not have to publically report earnings, except to the IRS for taxing purposes.  Go to a person who owns a company, and demand to see his books, and he has every right, and is protected by commerce law, and basically can tell you to go pound salt.  R. Staller

A private company is not open to AS MUCH public scrutiny perhaps...however any business regardless of ownership is a social organ and is thus open to some scrutiny by others. For example, my own business is 100% private...however the law allows that a supplier may request to see my books in  certain cases. The law also allows safety and environmental audits..employment audits..around here my workforce needs to reflect the cultural diversity of the population at large..if it does not then I've got a big problem even though my business is privately held. Also, if I want to do business with a bank or maybe some of the larger name brand customers then once again I will need to be free to open my books...some big accounts require full disclosure..they want to know who my customers are..what I'm charging them..who my suppliers are..all in some detail. Private ownership is a good thing..don't get me wrong...but from a practical standpoint it makes no sense to play it too close to the vest.

[rstaller]

Correct, a supplier has the right to demand proof of financial capability, government has the right to inspect for safety or enviormental issues.  If you want an operational loan from a bank, again financial responsibility must be established.

 RMW the key word inyour response section 1, is corporation.  If an individual buys XYZ rr and holds it as a private company, he need not incorporate. and therein lies the out.  R. Staller

[Railway Man]

If you're comfortable with that interpretation of the law, it is OK by me.  It is not my business or desire to argue on my own time.  I just come here for fun.  I am at your service if I can help you in any way.

RWM

[john_edwards]

 RWM, you are not the only one being entertained in this thread');" title="Laugh - ">

[Murphy Siding]

rstaller

Correct, a supplier has the right to demand proof of financial capability, government has the right to inspect for safety or enviormental issues.  If you want an operational loan from a bank, again financial responsibility must be established.

 RMW the key word inyour response section 1, is corporation.  If an individual buys XYZ rr and holds it as a private company, he need not incorporate. and therein lies the out.  R. Staller

  What exactly are the odds, of one person owning one $44 Billion Class 1 railroad, let alone two?  About 1 in 88 billion?

[UPReading85]

Murphy Siding

What exactly are the odds, of one person owning one $44 Billion Class 1 railroad, let alone two?  About 1 in 88 billion?

Good point, but it is not exactly $44 billion out of pocket. Since Berkshire already owns 22.6pc of BNSF's stock, the total out of pocket cash is $26 billion, with an agreement to take on to Berkshire's books $10 billion of BNSF debt. Since only 60pc of the payout to existing shareholders will be cash, the overall outlay is more on the order of $15-17billion.

The more interesting issue for the industry, and which probably requires a separate thread is whether or not this sparks the last great round of mergers. It is clearly a non-traditional rail merger in that it is about capitalization and not geography, but I would still think UP is a little nervous about it.  

[Murphy Siding]

UPReading85

Murphy Siding

What exactly are the odds, of one person owning one $44 Billion Class 1 railroad, let alone two?  About 1 in 88 billion?

Good point, but it is not exactly $44 billion out of pocket. Since Berkshire already owns 22.6pc of BNSF's stock, the total out of pocket cash is $26 billion, with an agreement to take on to Berkshire's books $10 billion of BNSF debt. Since only 60pc of the payout to existing shareholders will be cash, the overall outlay is more on the order of $15-17billion.

   I see what you're saying, but I was responding to rstaller's assertion that a sole owner could buy and merge 2 Class 1's without STB approval.  Berkshire owns 22.6%, not Buffet.  Buffet would have to buy out Berkshire's portion personally.  No reason to think this would happen.  No reason for it to happen.  Either way, the numbers are too large to suggest that it would ever be done in a sole ownership type arrangement.

[Ulrich]

I don't know about whether or not Bershire Hathaway's purchase will bring about mergers...however it has give me, and probably other investors, pause for thought. I don't own any shares in BNSF..but I do have a sizable portion of my retirement savings invested in rail stock. I've been happy with my investment..even enjoy reading the reports...but now I'm looking at other investments. I will probably sell my shares and invest the money in my own business. I like that idea because I run the busines..its mine lock, stock, and barrell...and I therefore have more control in how my investment appreciates over time. I'm 47 years old and don't want my retirement savings to be sidelined because some billionaire (institional or indivual) wants to buy the company.

 

[Dakguy201]

UPReading85

[
The more interesting issue for the industry, and which probably requires a separate thread is whether or not this sparks the last great round of mergers. It is clearly a non-traditional rail merger in that it is about capitalization and not geography, but I would still think UP is a little nervous about it.  

When I heard the news I started considering that.  However, this transaction is so different than the historical pattern in the industry that I think that it makes it unlikely that the purchase will be the cause of a last great round of mergers.  I also have doubts that the current political climate would permit a combination of any of the big 6 roads. 

 

[BNSFwatcher]

When I heard the news, I was pleased.  No, I didn't buy BNI at $16 (6 years ago), nor did I buy it at $116 (two years ago).  I am awaiting news about the conversion.  At this point, I am leaning towards converting it to BRK/B shares.  Time will tell.

As far as future mergers go, I would bet on CN taking over KCS.  It is a 'good fit', unless CPR gets into the act.  CP got 'burned' by the NIMBYs on the DM&E takeover.  CN did much better with the EJ&J thingie.  "We live in interesting times".  Dunno who said that, but it is true.

[CMStPnP]

john_edwards

 RWM, you are not the only one being entertained in this thread');" title="Laugh - ">

 

He-he-he-he.   I like the Berkshire Hathaway = 1 person.   Also I think legally because of it's size, it can be argued.......BNSF = Public Utility.       I know thats one reason Texas has a Railroad Commission.

[Anonymous]

Interesting article on the BNSF purchase in today's NY Times:

http://www.nytimes.com/2009/11/08/weekinreview/08barry.html

[beaulieu]

rstaller

 RMW the key word in your response section 1, is corporation.  If an individual buys XYZ rr and holds it as a private company, he need not incorporate. and therein lies the out.  R. Staller

 

 

It may or may not provide an out, but clearly your supposition doesn't apply in this case since BNSF was bought by Berkshire Hathaway Inc. which is a Delaware Corporation. 

It is my understanding that currently a company can be one of five types, a sole proprietorship, a partnership, a Limited Liability Co. (LLC), a S- Corporation, or a C- Corporation. My own business is a S-Corporation.

rstaller you may want to look up what happened when Santa Fe Pacific Inc. wanted to merge the Southern Pacific and AT&SF railroads. Mr. John Schmidt the Chairman of the Corporation didn't think the STB could say no either. The independent Board members consulted a top Washington law firm for advice and they quickly decided to have Mr. Schmidt shown the door, when he refused to take a no answer from the STB.

[Looshi]

As I discussed earlier today on my blog I don't see this deal creating another round of mergers. The status quo is very stable and I don't see big changes happening until that balance of power is upset. Is Buffet buying BNSF enough to change this? I don't think so. As far as we know at this time there will be little change in the day to day operation of the railroad and current management isn't going anywhere.

Combine that with the fact that the current political climate is very hostile to mergers and I don't think you will be seeing two mega-railroads in America anytime soon.

[beaulieu]

Looshi

As I discussed earlier today on my blog I don't see this deal creating another round of mergers. The status quo is very stable and I don't see big changes happening until that balance of power is upset. Is Buffet buying BNSF enough to change this? I don't think so. As far as we know at this time there will be little change in the day to day operation of the railroad and current management isn't going anywhere.

Combine that with the fact that the current political climate is very hostile to mergers and I don't think you will be seeing two mega-railroads in America anytime soon.

 

Nice looking Blog. One correction the Kansas City Southern is one of the seven Class I railroads in the United States. The other six are

Burlington Northern Santa Fe

Union Pacific

Norfolk Southern

CSX

Soo Line Corp.

Grand Trunk Corp.

[CMStPnP]

beaulieu

Soo Line Corp.

Grand Trunk Corp.

 

Soo Line is Canadian Pacific now I thought

Grand Trunk is Candian National now I thought