On Tuesday, Warren Buffet agreed to buy the 131-year-old United States Class I railroad Burlington Northern Santa Fe, the second largest freight railroad in the nation and one of the major rail players in the West and Mid West.
Buffett's Berkshire Hathaway conglomerate, which already owns 22.6 percent of the railroad, will pay $26 billion for the remaining 77.4 percent, paying $100 a share in cash and stock. Stock in the Fort Worth, Texas-based BNSF shot up 28 percent to $97 a share on the news.
Well known for sage investing that has made him a billionaire many times over, Buffett admitted to the New York Times on Wednesday that even this deal was pushing his financial limits.
"I stretched on this one," he told the Times. "I went to the last nickel."
To finance it, Buffett, often the man who sets the rules for other investors, will break one of his cardinal own: not to split Berkshire stock. To pay BNSF stockholders in the deal, Buffett will split Berkshire's class B shares 50-for-1. Berkshire will also borrow $8 billion in addition to using $8 billion of its own for the cash portion of the deal, with plans to pay off the debt in three annual payments.
Buffett first bought into BNSF in 2006 and also owns stock in Union Pacific and Norfolk Southern. Long a proponent of knowing any industry before investing, analysts at the time of the first small rail purchases believed that Buffett was in essence wading into the market with the intention of jumping in the deep end at some point. Eventually he amassed more than 76 million shares of BNSF before announcing the full plunge Tuesday.
Buffett predicted that though BNSF, like many in the transportation industry, have experienced a downturn due to the global economy, things would eventually pick up.
“We’ll make a good return, not a great return,” he told the Times.
Buffett's Berkshire Hathaway conglomerate, which already owns 22.6 percent of the railroad, will pay $26 billion for the remaining 77.4 percent, paying $100 a share in cash and stock. Stock in the Fort Worth, Texas-based BNSF shot up 28 percent to $97 a share on the news.
Well known for sage investing that has made him a billionaire many times over, Buffett admitted to the New York Times on Wednesday that even this deal was pushing his financial limits.
"I stretched on this one," he told the Times. "I went to the last nickel."
To finance it, Buffett, often the man who sets the rules for other investors, will break one of his cardinal own: not to split Berkshire stock. To pay BNSF stockholders in the deal, Buffett will split Berkshire's class B shares 50-for-1. Berkshire will also borrow $8 billion in addition to using $8 billion of its own for the cash portion of the deal, with plans to pay off the debt in three annual payments.
Buffett first bought into BNSF in 2006 and also owns stock in Union Pacific and Norfolk Southern. Long a proponent of knowing any industry before investing, analysts at the time of the first small rail purchases believed that Buffett was in essence wading into the market with the intention of jumping in the deep end at some point. Eventually he amassed more than 76 million shares of BNSF before announcing the full plunge Tuesday.
Buffett predicted that though BNSF, like many in the transportation industry, have experienced a downturn due to the global economy, things would eventually pick up.
“We’ll make a good return, not a great return,” he told the Times.
