Warren Buffett's Bet on BNSF

by Rafael

Recently, Berkshire Hathaway, the company led by renowned investor and industrialist Warren Buffett, announced a takeover bid for the 77% of shares in the Burlington Northern Santa Fe (BNSF) railroad it does not already own. Remarkably, the offer price of $100-a-share is around 30% above that of the share price before the takeover bid was announced. Even though the $44 billion deal is Berkshire Hathaway's biggest-ever, Buffett will still have $20 billion of cash on hand even after it closes. "It's an all-in wager on the economic future of the United States," said Buffett in a statement. "I love these bets."

A discussion thread in the NY Times' Room for Debate blog looks into the possible motives for the acquisition and Buffett's modus operandi. The panel of contributors perceives his grand bet primarily in the context of freight rail operations, which remain the most eco-friendly way to move bulk goods over land. That said, one of BNSF's core activities in the eastern US is hauling coal to power stations. (via Infrastructurist)

Even competitor Union Pacific has hailed Buffett's decision as a "strong positive statement" for the industry. Berkshire Hathaway has a 1.9% stake in UPRR but is not looking to expand on that.

BNSF owns and operates tracks in California and in Los Angeles in particular, notably between Redondo Junction (downtown Los Angeles) and the Arizona border and, between Bakersfield and Richmond. The company has a track record of solid cooperation with Amtrak California and Metrolink, it gives them scheduling priority and even measures Amtrak on-performance while on BNSF track.

In the context of the California HSR project, BNSF is open to at least discussing the partial sale of rights of way and/or air rights above them. CHSRA is relying on a deal with BNSF for the Redondo Junction to Fullerton and the Calwa (south Fresno) to Bakersfield sections of the planned network. The section between south Stockton and Calwa is suboptimal for HSR, but CHSRA's preferred alignment along the CA-99 corridor will be difficult to implement without a deal with UPRR, as will other sections of the network.

What, if any, impact might the Berkshire Hathaway acquisition of the remainder of BNSF have on California HSR?