Monday, November 16, 2009

Buffett Says Burlington Purchase ‘Not a Bargain’ for Berkshire (BRK.A; BNI)

From Bloomberg:
Berkshire Hathaway Inc.’s Warren Buffett, who agreed to buy Burlington Northern Santa Fe Corp. in his biggest takeover, said the railroad’s results in the next 100 years will justify a $26 billion bid that’s “not a bargain.”

“It’s a good asset for Berkshire to own over the next century,” Buffett said in an interview with Charlie Rose broadcast yesterday on PBS. “You don’t get bargains on things like that. It’s not cheap.”

Buffett is borrowing about $8 billion and risking Berkshire’s AAA credit rating at Standard & Poor’s to buy the railroad in what he calls an “all-in wager” on the future of the country’s economy. The stock-and-cash bid, announced on Nov. 3, values Fort Worth, Texas-based Burlington at $100 a share, 31 percent more than its closing price the day before.

“It was an opportunity to buy a business that’s going to be around for 100 or 200 years that’s interwoven with the American economy in a way that, if the American economy prospers, the business will prosper,” Buffett said....MORE

The two strongest points in favor of the acquisition are 1) the impossibility of recreating BNI's trackage and 2) the cash flow this thing will be kicking off to the parent company.