Berkshire & Burlington: what a way to run a railroad.

[Nords]

Here's an interesting MarketWatch update:
Berkshire gets antitrust OK to add to Burlington stake - MarketWatch

Apparently the FTC had to approve Berkshire's intent to continue acquiring shares of Burlington, so Berkshire had to submit filings that are made public. Part of the filing was the disclosure that BRK has acquired BNI call options at an average cost of $38.62/share with a strike price of $40. The options are for a total of 7.5M shares and can be executed on 3 Oct.

I don't know the fine details of how options are executed, but I'm assuming that means BRK could buy BNI shares for $78.62 when they're currently trading at around $82. Is that the total cost or am I missing commissions & other fees?

Who would be putting 7.5M shares on the street? Would that be created by Burlington (thus diluting the rest of the shareholders) or did some institution get snookered into making this deal with their pension-fund holdings? Even for Buffett & Simpson this seems to be a bit of an aggressive trading strategy, but I'm wondering if this is an extra-credit project that's going to boost one of Buffett's wunderkind protégés ahead of his fellow CFO competitors.

You would think that a 7.5M share trade, on its own or through a market-maker, would drive the market share price down to the trade's share price. Does the promulgation of this info mean that arbs would be tempted to drive down BNI's price in advance of the 3 Oct option execution? How does this news affect trading strategies?

I'm really looking forward to BRK's November quarterly shareholder report!

 

[Nords]

BTW here's an update on the PetroChina selling:
"HONG KONG, Sept 20 (Reuters) - Investment guru Warren Buffett's Berkshire Hathaway Inc (BRKA) sold $41 million worth of shares in PetroChina Co Ltd on Sept. 6, making the fund's third sale of stock in Asia's top oil and gas producer announced in two months.
Berkshire sold just over 28 million shares at an average price of HK$11.47 apiece, trimming its stake in PetroChina (PTR) to 8.93 percent from 9.07 percent of the firm's free-floating shares, according to data compiled by the Hong Kong stock exchange and released on Thursday.
Berkshire built up its stake in PetroChina in April 2003 at an average price of about HK$1.60 per share, becoming the second biggest shareholder in what is now the world's second-biggest oil firm by market capitalisation, after Exxon Mobil (XOM) .
Despite his "value investing" philosophy, which advocates snapping up quality stocks at a bargain price and then holding them for decades, Buffett began selling his shares in late July, realising a gain of more than 600 percent.
He first cut his holding by 16.9 million shares in late July and sold a further 92.66 million a month later."

600% in just over four years-- what a dirty market timer.

Even worse, I've read that the Hong Kong exchange's rules require notifying them of large sales by "e-mail, fax, or mail" within a certain time limit. Berkshire complied with that requirement for one of the earlier share sales by mailing a letter from Omaha postmarked the last day of the time limit, which took two weeks to get to Hong Kong. This delayed news of the sale caused a fuss but it was really too late for anyone to do anything. (This seems to be why the Reuters article above is reporting a 6 Sep event two weeks later.) As a result of this behavior the exchange is considering modifying its rules to require more timely reporting...

 

[audreyh1]

John McPhee has written about railroads and their employees, and has ridden on a BN coal train from the mine to the power plant. He mentioned that hauling low sulfur coal in the West has resurrected RR lines that were dying from trucking and inefficientcy. BN is the best run RR. Of McPhee's 30? books, I don't know which one has the info. If you are a BH shareholder, reading McPhee would be informative about their new acquisition.
I agree with twaddle about the moat. They aren't making any more RR right of way. The existing right of way has visible rails and buried gasoline and communication pipelines.
If you have driven on Interstate 40 across Arizona and New Mexico, you've raced those long trains of double stacked cargo containers full of Chinese goods headed east. The locomotives may still be Santa Fe RR sunset colors, but the initials are now BNSF.

Doing the Lewis and Clark trail across the midwest - following the Missouri - we've sure seen lots of trains hauling almost nothing but coal in Missouri, Nebraska, South Dakota. I read that BNSF ships virtually 100% of the coal transported from the Powder River Basin and that right now the railroad is the constraint on how fast coal can be exported. BNSF trains seemed to dominate across most of these states.

Once we reached northern North Dakota and Montana (Great Northern RR) it looked like shipping containers (yep, mostly Asian!) being hauled from/to west coast. Still mostly BNSF! This was also the first time we saw regular passenger trains after traveling a long, long way and seeing many, many different tracks and trains.

I started looking up all this stuff because we noticed all these busy railroads and noticed how the cargo changed based on the state. We got pretty curious, especially when we crossed a large region that was hauling NOTHING BUT COAL.

Just some anecdotes/personal observations from a trip across a large chunk of Western North America.

Audrey

P.S. I'll have to check out that McPhee book. I've read several of his - great stuff - particularly the geology ones.

 

[unclemick]

Very interesting - especially in light of the negitive press afforded Union Pacific in the not too distant past about botched deliveries, power plants sweating running out of coal, traffic jams and other problems.

Could BNSF have stolen some of their thunder - er business?, taken advantage?

heh heh heh - Buffett bought all 3 rails in varying amounts - but I think I stick with my doggy UNP for now.