Stud: Berkshire Hathaway and Burlington Northern Santa Fe
It has been almost four years since the merger between Berkshire Hathaway (BRK.B) and Burlington Northern in February 2010, and it’s hard to imagine Warren Buffett’s company without the railroad in its portfolio of investments.
In the first nine months of 2013, BNSF contributed $2.7 billion in earnings to Berkshire Hathaway’s bottom line, by far the largest dollar amount by a single entity anywhere in the company. Buffett was happy when he bought it and he’s even happier today. In his 2012 annual letter to shareholders he stated, “Had we instead allocated the funds required for this purchase to dividends or repurchases, you and I would have been worse off.”
The transaction was a combination of cash and stock involving $15.87 billion in cash plus the issuance of 80,932 Class A shares and 21 million Class B. When the election results were tallied, 40% of BNSF shareholders received stock with 60% settling for cash instead. Those BNSF shareholders who accepted stock and are still holding are sitting on cumulative returns of 51% for the Class A and 49% for the Class B.
In my opinion, this was one of the smartest deals in American corporate history because he bought BNSF on the cheap just before it became apparent railways were about to experience a renaissance thanks to oil and gas. A year or two later he wouldn’t have been so lucky.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.