Buffett Makes His Whale of an Acquisition (BRK-A, BRK-B, BNI, UNP)

Douglas A. McIntyre

BuffettImage gates foundationWe always knew that Warren Buffett loved the railroad stocks.  We also had for years heard Buffett talk about the prospects of a “whale of a deal” in large acquisitions. And now this morning he is showing just how much.  Berkshire Hathaway Inc. (NYSE: BRK-A) is acquiring Burlington Northern Santa Fe Corporation (NYSE: BNI).  The terms call for $100.00 per share in cash and stock, well above the $76.07 closing bell price yesterday.  Buffett already had a huge stake of 76.77 million shares, so he is buying the 77.4% stake he does not already own.  It turns out that Warren is finally doing his whale of a deal.  The transaction is valued at about $44 billion, if you include $10 billion of outstanding BNI debt.  That makes this the largest transaction in Berkshire Hathaway history.

Where this gets interesting for Joe Public is that this is also entailing a 50 for 1 stock split in the “B-Shares” of Berkshire Hathaway.  Holders have the right to receive either a cash payment of $100.00 or a variable number of shares of Berkshire Hathaway Class A or Class B common stock, with the stipulation that the elections do not equal about 60% in cash and 40% in stock.

The stock component is also subject to a “collar” whereby the value of each Berkshire Hathaway share received is fixed at $100.00 if the price of Berkshire Hathaway Class A stock at closing is between about $80,000.00 and about $125,000.00 per share.

Buffett has referred to this as a bet on the future of America.  If you look through the Berkshire Hathaway holdings, you will see that Buffett also owns Union Pacific Corp. (NYSE: UNP), although he briefly noted in a CNBC that he would not have an appetite to acquire it as well.  Buffett also told CNBC that after he does his borrowing for this and the conversions that he’ll ultimately still be left with some $20 billion in cash on hand.

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