Making a $34-billion (U.S.) bet on the future of the U.S. economy, Warren Buffett's Berkshire Hathaway Inc. on Tuesday agreed to buy Burlington Northern Santa Fe Corp .
"Berkshire's $34-billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry," Mr. Buffett said in a statement.
"Most important of all, however, it's an all-in wager on the economic future of the United States. I love these bets," he said.
Berkshire Hathaway already owns about 22 per cent of Burlington Northern, and said it will pay $100 a share in cash and stock for the rest of the company, a 31.5 per cent 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 per cent of the deal is cash and 40 per cent 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. Burlington shares shot up $21.56, or 28.4 per cent, to $97.63 in morning 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.
The chairman of MidAmerican Energy has come out vocally against climate change legislation which targets coal-fired 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.
Last month the company reported third-quarter profit dropped 30 per cent to $488-million, or $1.42 per share, as people continued to hold back on purchasing goods from stores and industrial production continued to struggle.