Railroad shipping: Buffett set to sell Union Pacific and Norfolk Southern shares
Jeff Berman, Group News Editor -- Logistics Management, 11/10/2009
Following last week's news that billionaire investor Warren E. Buffett and his investment group Berkshire Hathaway intend to acquire Class I railroad carrier Burlington Northern Santa Fe, Matthew K. Rose, BNSF chairman, president and CEO said in a Securities and Exchange Commission filing that Buffett will sell his shares in BNSF competitors Norfolk Southern Corp. and Union Pacific Corp.
A Wall Street Journal report indicated that Buffett owned 9.6 million shares of Union Pacific and 1.9 million shares of Norfolk Southern as of June 30.
In the SEC filing, which features a transcript of a BNSF conference call, Rose said that Buffett will dispose of both of these holdings between now and the transaction date for when the deal is made official, which is expected to be during the first quarter of 2010.
Prior to last week's news, Buffett owned 22.6 percent of BNSF shares. When this deal is complete he will have acquired the remaining 77.4 percent of BNSF shares it did not already own. Company officials said the transaction is valued at roughly $44 billion, which includes $10 billion of outstanding BNSF debt.
During the conference call, BNSF's Rose said the deal has received a favorable response.
"I've talked to 22 outside people today from senators to congressmen to labor leader heads to regulators to DOT people," said Rose. "I have to tell you there's not a single conversation I've had that has been negative. There are a lot of questions and there are people we will need to sit down with and discuss this, but overall it has been very well received. The market obviously has bought in, as Warren says, and we'll take this one step at a time."
Wolfe Research President Ed Wolfe wrote in a research note that Buffett selling his NS and UNP shares is not a requirement for regulatory approval, since Berkshire Hathaway does not control either company.
"Our sense is that this should help to allay regulators' fears of monopolizing the industry," wrote Wolfe. "Recall that since Berkshire does not control any other railroad, the STB's [Surface Transportation Board] approval is not required for the...acquisition."
As one of the largest U.S. Class I railroads, BNSF is heavily involved as a provider of intermodal services and transports the most grain of all U.S. Class I railroads, as well as high levels of coal. It was established in 1995, when Burlington Northern Inc. and the Santa Fe Pacific Corporation merged. This merger created a network comprised of more than 34,000 route miles across-ranging from the Pacific Northwest and Southern California into the Midwest, Southeast, and Southeast-across nearly 30 states and into parts of Canada.
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