Buffett buys a $27bn train set
Nov 06, 2009
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Buffett's trains: a big punt on economic recovery?
Warren Buffett has just "struck the biggest deal of his life", said the FT. He's forking out $26.6bn (£16.2bn) for 77.4% of Burlington Northern Santa Fe. The firm is one of the largest US railroad operators that his holding company Berkshire Hathaway doesn't already own. It's a "a very solid business…that will do well if the economy does well", said Buffett, "and I believe the economy will do well". His previous biggest deal was his 1998 $18bn General Re acquisition.
What the commentators said
"That is some train set," said the FT's Lex, "an almighty bet on the US economic recovery as well as the forces – including rising fuel prices and environmental angst – pushing long-haul freight onto the rails." It's also a punt on cleaner coal, said Damian Reece in The Daily Telegraph. Of the coal Burlington transports, 90% is low-sulphur coal, "which will be in ever higher demand".
"Buffett has a name for buying dollar bills for 50 cents," said Richard Beales on Breakingviews. But this time he's paying a hefty 31% premium – a bet on growth rather than value. And this purchase could take quite some time to pay off. The recovery is likely to be slow and the trucking industry "isn't going to give up without a fight".
But surely the claim that this is "an all-in wager" on the US economy is "a large helping of Buffett spin", said The Guardian's Nils Pratley. "This looks more like an old-fashioned bet on a utility-style company that can prosper even if the US economy falters." Either way, this may not be the last headline-making deal by the 79-year-old investor. Although Buffett said he would steer clear of large deals for sometime, he also confirmed that "there's something left in the piggy bank" for smaller transactions.
BNSF: $97; 12m change 11%.
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