February 12, 2010 / 8:07 PM / 7 years ago

Buffett unbound: Berkshire buys BNSF, joins S&P 500

<p>Billionaire financier and Berkshire Hathaway Chief Executive Warren Buffett eats ice cream as he walks during the Berkshire Hathaway Annual Shareholders meeting in Omaha, Nebraska in this May 2, 2009.Carlos Barria/Files</p>

NEW YORK (Reuters) - Warren Buffett's train has left the station, and millions of investors are joining him for the ride.

The billionaire investor's Berkshire Hathaway Inc (BRKa.N) (BRKb.N) on Friday completed its roughly $26.4 billion purchase of Burlington Northern Santa Fe Corp BNI.N, issuing new stock and paying out $15.87 billion of cash.

Berkshire is also replacing the No. 2 U.S. railroad company in the Standard & Poor's 500 index of large U.S. companies. It will begin trading on that index on Tuesday.

More than $1 trillion of investor money tracks the index, and the addition of Omaha, Nebraska-based Berkshire is expected to generate about $14 billion of buying demand.

Indeed, trading in Berkshire stock was extremely heavy on Friday, as more than 219 million Class B shares changed hands, Reuters data as of 4:30 p.m. EST (2130 GMT) show.

The B shares rose 21 cents, or 0.3 percent, to $76.90, while the Class A shares rose $772.60, or 0.7 percent, to $115,722.60, the data show.

The new investors are buying into a roughly $173 billion behemoth that owns some 80 businesses selling things from Geico car insurance to Dairy Queen ice cream to Fruit of the Loom underwear. Berkshire also owns tens of billions of dollars of blue-chip stocks.

"It's a prudent retirement investment, but results of the past are not going to be repeated," said Justin Fuller, author of the Buffettologist.com blog. "It will probably do better than the S&P 500, but only slightly. That's a function very much of its size."

Buffett has repeatedly warned not to expect Berkshire to perform as well as it did decades ago, when it was smaller.

Back then, growth in book value per share -- the difference between assets and liabilities, which Buffett prefers using to measure performance -- routinely trounced the S&P 500.

In Buffett's first 44 years at Berkshire, book value per share rose an average 20.3 percent a year, while the S&P 500 including dividends rose 8.9 percent.

Berkshire still usually beats the index, but by smaller amounts. It has also lost its triple-A credit ratings.

More Visible Buffett

Buffett's wisdom is also less of a commodity.

The world's second-richest person now appears on TV and speaks out more regularly, such as last month when he expressed dismay with how Berkshire holding Kraft Foods Inc KFT.N had structured a proposed merger with Cadbury Plc CBRY.L.

Moreover, Buffett turns 80 in August. Though he has not said when he might step down or who will succeed him as chief executive, other than that one person is ready to do so, he is moving near the end of his career.

Nonetheless, Berkshire shares are up about 13 percent since S&P on January 26 said they would enter the S&P 500.

And shares could rise further next week if index investors who have yet to amass enough of them keep buying.

Berkshire was able to join the S&P 500 after last month splitting its "Class B" stock 50-for-1, which lowered its share price to below $70 from around $3,400.

This allowed more Burlington Northern shareholders to swap their stock for Berkshire stock if they chose. But it also added the liquidity that S&P demands for S&P 500 components.

Berkshire's Class A shares trade well above $100,000.

The cash-and-stock acquisition of Burlington Northern valued the company at $100 per share. Berkshire already owned 22.6 percent of the Fort Worth, Texas-based company.

Insurance remains Berkshire's largest business area, and Berkshire this month became the biggest shareholder of Munich Re (MUVGn.DE), the world's largest reinsurer.

Buffett's largest previous acquisition was Berkshire's 1998 takeover of the reinsurer General Re. He admitted to paying full price for Burlington Northern.

"Maybe when I hear that choo-choo, I get carried away," Buffett told CNBC television last month.

Editing by Steve Orlofsky, Bernard Orr

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below