Buffett buys new train set

H

HFWR

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Joined
May 10, 2005
Messages
14,183
Location
Lawn chair in Texas
Drat - I own a few shares of the other guy - Union Pacific.

Wonder what's gonna happen there with a a competitor going 'private' in a manner of speaking.

?

heh heh heh - :cool:
 
Looks like Goldman Sachs handled the deal, which Buffet put money into last year, so in effect he gets a "rebate" to do the deal.........:)

That dude is scary smart...........:)
 
Looks like Buffett just traded about 16B in low yielding cash for 16B in BNI stock with an earnings yield of about 7%. Possibly a real return of 7% if they can increase prices with inflation.

BNI seems like another utility type play, with regulated bond-like returns and big needs for additional cash invsetments in the future to help soak up Berkshire's future cash generation.

I will gladly take a possible 7% real return going forward, if it works out that way............
 
Speculation is that this will fit in well with another BRK holding, Midamerican Energy. They use a LOT of coal. BNSF hauls a lot of coal. There are probably efficiencies to be gained and profits to keep in house.
 
cardude said:
Looks like Buffett just traded about 16B in low yielding cash for 16B in BNI stock with an earnings yield of about 7%. Possibly a real return of 7% if they can increase prices with inflation.

BNI seems like another utility type play, with regulated bond-like returns and big needs for additional cash invsetments in the future to help soak up Berkshire's future cash generation.
Click to expand...
I've heard some analysts indicate they think this is a way to play coal without actually dabbling in the underlying commodity.
 
I wonder if Buffett was still holding BNSF call options. If he buys the company, does he get a refund of his premiums?

Some interesting aspects to this purchase:
- This is Berkshire's biggest acquisition. Ever.
- Buffett hates paying with Berkshire stock. The only times he's done that is when he considers the stock overvalued (I doubt that's the current situation) or when the sellers demand it (not likely the situation for a publicly-traded company) or when Buffett really really really wants the company.
- Not only is he buying with Berkshire stock, he's paying a premium for a company that's not on sale or in some sort of trouble. Highly unusual. Yeah, yeah, a "wonderful company at a fair price" and all that, but I'm just saying that it's not his normal [-]Constellation Energy[/-] vulture lowball practice.
- Apparently railroads have a very big moat. Well-run railroads, anyway. But IIRC there's a constant tug-of-war competition with the trucking industry...
- ... but not for hauling coal. It seems that the only thing hauling coal is rail. I suspect that Mid-American has locked in their coal-hauling prices forever.
- He's never split shares 50:1, let alone split "B" shares 50:1. At roughly today's prices, each BNSF shareholder is holding $100/share for which they'd get a ~$66 Berkshire "C" share and some cash.
- Berkshire's quarterly report will be released this Friday night. Funny how the BNSF deal came together quickly enough to be included in that. I think the real timing issue was Buffett waiting until hurricane season ended so that he'd know how much cash he had available for investing in an acquisition this big.
- Mid-American's/NetJet's CEO Sokol is rumored to be Buffett's successor. I wonder how he was involved in this negotiation.
- Despite the occasional speculative rumor, putting so much into the BNSF acquisition implies that Buffett is probably not going to partner with Kraft to pursue Cadbury.
- Daily trading volume of Berkshire's "B" shares has been steadily rising, and accelerated when he made his 20-year donation to the Gates Foundation (requiring the foundation to sell the annual donation of "B" shares each year). Options recently started trading on these shares, another sign of liquidity. Issuing more shares (and continuing rising volume) could result in Berkshire being added to the S&P500 within the next few years.
 
Nords said:
- Berkshire's quarterly report will be released this Friday night. Funny how the BNSF deal came together quickly enough to be included in that. I think the real timing issue was Buffett waiting until hurricane season ended so that he'd know how much cash he had available for investing in an acquisition this big.
Click to expand...

He mentioned this morning that they had been [-]avoiding FL and CA[/-] reducing risk in the insurance bidness...
 
Looks like Buffett is chugging along, full steam ahead, and is betting the railroads are still an important engine in America economic growth. Given his track record I am happy passenger on the Omaha express.

It is pretty cool, I now own more than 1,000 shares of Berkshire, and a railroad. Now that Buffett has bought C&O and B&O he only needs to acquire Reading and Shortline to collect double rent and railroad the competition.
 
When do you need to own the shares to be part of the 50:1 split. If/when the board approves this will they use a date in the past?
 
I think that in addition to a play on economic recovery, this is a bet on higher energy prices in the future. Rail let's you move a ton of freight 20 to 40 times the distance trucks can on a given amount of diesel. And I bet the utility holdings gave them extra insight into BNI's business.

Seems like a good bet, but a big one. I suspect Berkshire will not be writing much cat reinsurance for a while after doing this. Fine by me, given that I own pieces of other cat reinsurers.
 
Andy R said:
When do you need to own the shares to be part of the 50:1 split. If/when the board approves this will they use a date in the past?
Click to expand...

Andy,
No date set. The following from the official news release at 2009 News Menu

Omaha, NE (BRK.A; BRK.B)—Berkshire Hathaway Inc. today announced that its Board of
Directors approved a 50-for-1 split of its Class B Common Stock. The stock split is subject to
the approval of Berkshire’s shareholders, who must approve an amendment to Berkshire’s
certificate of incorporation to increase Berkshire’s total number of authorized shares of common
stock, as well as the total number of authorized shares of Class B Common Stock, in order to
permit the consummation of this split. Berkshire’s Class A Common Stock is not being split.
Berkshire has not yet set the date for the special meeting of its shareholders to vote on the
amendment to its certificate of incorporation, or the record date for the stock split.

-- Rita
 
Nords said:
- Apparently railroads have a very big moat. Well-run railroads, anyway. But IIRC there's a constant tug-of-war competition with the trucking industry...
- ... but not for hauling coal. It seems that the only thing hauling coal is rail. I suspect that Mid-American has locked in their coal-hauling prices forever.
Click to expand...

Railroads do have a wide moat. There are only seven Class I railroads in North America -- Union Pacific and BNSF are the only ones in the US running from the West Coast back East (Canadian Pacific is the third to reach the West Coast). To the extent the economy picks up steam and we start buying more stuff from China, it will ship on UNP and BNI. They also ship a ton of coal from Wyoming back East. BNI has modernized and double tracked almost all of its route and is well positioned. With respect to trucking, rail actually benefits preferentially from oil price increases, because its per ton usage of fuel is lower. If oil prices increase as I expect, the rails will take business from the trucking companies.

All in all, I think BNI is a fine company and a darned good investment, which is why I bought it in September 2004 at $37.25. Counting dividends, it has now returned about 29% compounded annually over the last five years. That said, I sold my BNI yesterday at $97.59. I think Buffett has paid a rich price for this point in the cycle, and I may redeploy to one of the other other rails (probably UNP)
 
Nice investment Gumby. In the past some of Buffett's purchase have cause shareholders to protest the price was too low. On the perfectly logical basis that Buffett never overpays ergo we shareholders are getting taken. :)

If you are any example I suspect most BNI shareholder will be happy to take the profits either in cash or Berkshire stock.

I have mixed feelings. It doesn't strike me a real bargain, on the other hand even though I know it is foolish to believe that anybody can beat the market ;), the guy in Omaha has pretty good track record so I am inclined to believe that this isn't a stupid purchase.
 
brewer12345 said:
I think that in addition to a play on economic recovery, this is a bet on higher energy prices in the future. Rail let's you move a ton of freight 20 to 40 times the distance trucks can on a given amount of diesel. And I bet the utility holdings gave them extra insight into BNI's business.

Seems like a good bet, but a big one. I suspect Berkshire will not be writing much cat reinsurance for a while after doing this. Fine by me, given that I own pieces of other cat reinsurers.
Click to expand...

I notice CSX is running tv ads making the same point?

My suspoius mind immediately wondered why as my hand went to check that my wallet was still there.

heh heh heh - running ads on cable tv is a way to efficiently reach shippers?? :cool:.
 
clifp said:
Nice investment Gumby. In the past some of Buffett's purchase have cause shareholders to protest the price was too low. On the perfectly logical basis that Buffett never overpays ergo we shareholders are getting taken. :)
If you are any example I suspect most BNI shareholder will be happy to take the profits either in cash or Berkshire stock.
I have mixed feelings. It doesn't strike me a real bargain, on the other hand even though I know it is foolish to believe that anybody can beat the market ;), the guy in Omaha has pretty good track record so I am inclined to believe that this isn't a stupid purchase.
Click to expand...
Rumor is that the BNI board wasn't happy with the $100/share offer but Buffett said that's all he could afford. They eventually agreed to the tax-free aspects of swapping their shares for BRK "C" shares. And maybe some free See's Candies.
Buffett cuts BNSF deal at Fort Worth's Ashton Hotel | Fort Worth | Star-Telegram.com
'Courtesy Call' Turns Into a Quick Agreement - WSJ.com

Another financial firm is speculating that this will speed Berkshire's entry into the S&P500 to the extent that they're telling their customers to start buying March call options.
Berkshire Hathaway in the S&P 500? - Striking Price Daily - S. Sears - Barrons.com

Um, I'll let someone else jump into that one first...
 
On the Berkshire Motley Fool board, I think more people are excited about seeing Berkshire added to the S&P 500 than the purchase of BNI.
 
clifp said:
On the Berkshire Motley Fool board, I think more people are excited about seeing Berkshire added to the S&P 500 than the purchase of BNI.
Click to expand...
I'm looking forward to it. As the demand drives up Berkshire's price I'll just keep converting "B"s into "C"s and [-]writing OTM covered calls[/-] rebalancing into it...

Looks like Buffett has also been doing a little end-of-year planning involving low-income-housing tax credits, too:
http://seekingalpha.com/article/171720-goldman-buffett-deal-with-fannie-mae-inked-a-month-ago
 
Last edited:
Bumping this thread just to update all:

Special meeting of Berkshire Hathaway investors is January 20.

Requests are to approve a 50:1 stock split for class B shares and change par value to $.1667.

-- Rita
 
You must log in or register to reply here.

Latest posts

Back
Top Bottom