UPDATE 7-Buffett buying Burlington rail in his biggest deal
* Price of $100/share is a premium of 31.5 percent
* Deal values railroad at $34 billion
* Berkshire board votes to split Class B shares 50-for-1
* Deal lifts railroad shares (Adds detail on stake sales, valuation, updates shares)
NEW YORK, Nov 3 (Reuters) - Warren Buffett's Berkshire Hathaway Inc (BRKa.N)(BRKb.N) will pay $26 billion to buy out Burlington Northern Santa Fe Corp (BNI.N) in a bet the nation's largest rail company will benefit from a recovering U.S. economy.
The deal, announced on Tuesday, is the billionaire investor's biggest-ever acquisition and may prompt him to sell some of his other investments, which include a wide range of companies from Coca-Cola Co (KO.N) to General Electric Co (GE.N), some Buffett watchers said. [ID:nN03453625]
By betting on BNSF, Buffett -- the world's second-richest person and a long-time model train buff -- renewed interest in a storied, but highly cyclical American industry that has tried to reinvent itself by emphasizing its ability to move goods cheaply and efficiently.
"It's an all-in wager on the economic future of the United States," Buffett, who has been building up his rail holdings for several years, said in a statement. "I love these bets."
Buffett will pay a premium of 31.5 percent over BNSF's closing stock price on Monday, valuing the railroad at $34 billion, or 18 times estimated 2010 earnings. Most rail companies' P/E ratios are in the mid-teens.
BNSF shares jumped 27.51 percent and other U.S. and Canadian rail shares also rose, as analysts said the deal puts an oft-neglected industry in Wall Street's focus and could bring some fresh money into the sector. But they did not expect a wave of deals in the railroad sector, given regulatory concerns. [ID:nN03501898]
"Buffett has always stated that he likes the longer-term viability of the rails ... but people really weren't paying attention," said Longbow Research analyst Lee Klaskow. "This is shining a spotlight on this group, bringing more investors into the fold."
SHARE DEAL UNUSUAL FOR BUFFETT
Buffett, who has long preferred all-cash deals, is paying $100 per share in cash and stock for the 77.4 percent of BNSF shares that Berkshire does not already own.
Berkshire would also assume $10 billion of BNSF debt. It would pay about $16 billion in cash, of which $8 billion would be from its own funds and the rest from debt.
Smoothing the way for the share exchange, Buffett reversed his long-time opposition to stock splits, which has resulted in Berkshire having the highest per-share prices of any shares on the New York Stock Exchange. Buffett agreed to a 50-for-1 split of Berkshire Class B stock, which will make it much more accessible to retail investors. [ID:nN03510124] Continued...
