Berkshire Hathaway, the investment vehicle of Warren E. Buffett, said on Tuesday that it planned to buy the 77.4 percent of Burlington Northern Santa Fe it did not already own for $34 billion in cash and stock, in the largest deal in Berkshire history.
The deal, which will also include the assumption of $10 billion in Burlington Northern debt, represents what Mr. Buffett said was a big bet on the United States. He told CNBC in an interview that railroad operators cannot do well unless American businesses were producing goods and customers were buying them.
“It’s an all-in wager on the economic future of the United States,” he said in a written statement. “I love these bets.”
In the interview with CNBC, Mr. Buffett said that the deal came together quickly. He made a proposal to Matthew K. Rose, Burlington Northern’s chairman and chief executive. Mr. Rose took the proposal to his board — and got an answer in about 15 minutes.
“We are thrilled to have the opportunity to become a part of the Berkshire Hathaway family,” Mr. Rose said in a statement. “We admire Warren’s leadership philosophy supporting long-term investment that will allow BNSF to focus on future needs of our railroad, our customers and the U.S. transportation infrastructure.”
During the financial crisis of last year, Mr. Buffett spent $14.5 billion to buy preferred shares of three blue-chip American companies, Wrigley, General Electric and Goldman Sachs. These companies didn’t get Mr. Buffett’s seal of approval for free, however; the preferred stock carries hefty dividend payments.
Burlington Northern was created in June of 1994 with the merger of Burlington Northern Inc. and the Santa Fe Pacific Corporation in a stock swap valued at $2.7 billion. The merger was seen as complementary, giving it access to the coal fields of the West as well as West Coasts ports and Mexico and Canada. Santa Fe specialized in intermodal services, which involves moving goods by rail to be delivered locally by truck. Burlington Northern carried heavy commodities like coal, grain and timber.
Under the terms of Tuesday’s deal, Berkshire will pay about $100 for each Burlington Northern share, a price comprised of about 60 percent in cash and 40 percent in stock. Berkshire deals historically have almost never used stock, but Mr. Buffett told CNBC that Burlington Northern wanted a tax-free component for their shareholders.
Shares in Burlington Northern, which closed Monday at $76.07, jumped nearly 30 percent in premarket trading on Tuesday to $98.15. Class A shares in Berkshire were up slightly in premarket trading at $98,971.57.
As part of the deal, Berkshire will split its class B shares 50-to-1 to help pay for the acquisition. It’s an unusual move for Mr. Buffett, who has long said he did not like stock splits. Most of the stock component in the deal, however, will be in Berkshire class A shares.
Of the $16 billion in cash for the deal, Berkshire plans to use $8 billion on its books and $8 billion borrowed from banks, which will be repaid in three annual installments. After the deal, Berkshire will have $20 billion in cash on hand.
“I like cash,” Mr. Buffett said.
The Burlington deal is the largest for Mr. Buffett since he agreed nearly two years ago to acquire control of Marmon Holdings, the industrial holding company of the Pritzker family, for an initial price of $4.5 billion.
