Berkshire shareholders OK split for railroad deal

OMAHA, Nebraska Wed Jan 20, 2010 1:00pm EST

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OMAHA, Nebraska (Reuters) - Shareholders of Warren Buffett's Berkshire Hathaway Inc (BRKa.N) on Wednesday approved a stock split that clears the way for the acquisition of railroad company Burlington Northern Santa Fe Corp BNI.N, Buffett's biggest acquisition ever and a sign of the billionaire investor's bullish outlook for the U.S. economy.

Speaking to shareholders at a meeting in his hometown of Omaha, Buffett said he saw Berkshire Hathaway investing $20 billion more than depreciation over the next 10 years in its rail and utility properties as he sees the U.S. economy slowly turning around.

"We will put a lot of money to work," he said.

Shareholders, as expected, approved a 50-for-1 split of Berkshire's Class B shares. The higher-priced Class A shares are not being split. Berkshire is paying $100 in cash and stock for each outstanding BNSF share.

The split pares the partial shares Berkshire issues to BNSF investors. Buffett said at the meeting that the split was needed to make the transaction easier for small investors.

"If we hadn't done this there would have been justification of the criticism that a big shareholder got a different deal that a small shareholder," Buffett said.

BNSF shareholders will vote on the sale on February 11. Closing is expected during the first quarter.

Berkshire is buying the 77.4 percent of BNSF it does not already own. When the deal was announced in November it was valued at $26.4 billion, making BNSF worth $34 billion. The figures exclude $10 billion of BNSF debt being assumed by Berkshire.

BNSF, the second-largest U.S. railroad company, will continue to operate from its Fort Worth, Texas, headquarters and will become a wholly owned subsidiary of Berkshire.

Buffett reiterated Wednesday that the purchase of BNSF is a bullish wager on the U.S. economy that should produce good returns well into the future. But he cautioned that though BNSF is a solid long-term investment, he does not expect strong returns in the short term.

"The railroad industry in 2010 is not going to do well," he said. "I think the return on capital in the business is going to be satisfactory."

Buffett said BNSF's business across the western United States was key as he sees growth in the West outpacing growth in the East.

BNSF subsidiary BNSF Railway Co operates across 32,000 miles through 28 U.S. states and two Canadian provinces, moves more grain than any other American railroad, and hauls enough low-sulfur coal to generate about 10 percent of the electricity produced in the United States.

Buffett said he remained generally concerned about the economy in the near term, and thought job growth initiatives need to be a top priority for policy makers even as they wrestle with the deficit.

"Job creation should be paramount but ... getting weaned off federal deficits may be the great problem for administrations to come," he said. "It is certainly critical to have what you think is a path out of deficits that are 8 or 10 percent of GDP. That is going to create problems if left unchecked. We ought to have a path out of that."

Buffett said inflation in the long term was a top concern but he hoped not to see any near-term tightening in monetary policy.

"This economy does not need tightening now," he said. "There is all kinds of unused capacity around."

One bright spot he sees is in residential housing, specifically in the market for homes priced below $500,000.

"Residential housing is coming back," he said. "Within the year, most of the problem in terms of houses in the medium- and lower-price range, and in almost all areas -- I'm not saying they're going to bounce up, but I don't think you'll see deterioration." (Reporting by Carey Gillam; editing by John Wallace)

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