Berkshire Hathaway to join S&P 500, shares soar

NEW YORK (Reuters) - Standard & Poor’s said it will add Warren Buffett’s Berkshire Hathaway Inc to its flagship S&P 500 stock index, as the company prepares to acquire railroad operator Burlington Northern Santa Fe Corp.

Warren Buffett eats ice cream during the Berkshire Hathaway Annual Shareholders meeting in Omaha, Nebraska, May 2, 2009. REUTERS/Carlos Barria

Berkshire’s Class B shares rose $5.40, or 7.9 percent, to $73.40 following the announcement after hours. Its Class A shares, which were not split, closed down $1,449 at $101,751 on Tuesday. They rose 8.1 percent to $110,000 after hours.

S&P’s announcement followed Berkshire’s 50-for-1 split last week of the B shares, to make it easier for Burlington Northern shareholders to exchange their stock for Berkshire stock in a tax-free swap, rather than accept cash.

Berkshire will replace Burlington Northern in the S&P 500 and in the S&P 100 index of the largest blue-chip companies, on the date to be announced.

It expects this quarter to buy the 77.4 percent it did not already own of Burlington Northern in a transaction it valued at about $26.4 billion.

The addition of a company to the S&P 500 often boosts its share price because many portfolio managers try to track the index and must buy shares of companies that enter it.

“The split provided more liquidity and index investors have to buy the stock, which both can boost the shares,” said Steven Check, chief investment officer of Check Capital Management Inc in Costa Mesa, California.

“The addition to the index is something I don’t think Warren Buffett was lobbying for, but is certainly something he would have wanted.”

Check said his firm invests $300 million, of which 25 percent is in Berkshire stock.

Berkshire, through Buffett’s assistant Carrie Kizer, had no immediate comment.

With a market value of about $158 billion, Berkshire is the largest publicly-traded U.S. company not in the S&P 500.

The Omaha, Nebraska-based company had long been excluded from the index because its shares were not liquid enough.

Last week, though, Buffett told CNBC television the stock split could give Berkshire about 700,000 investors.

Berkshire operates roughly 80 businesses and has tens of billions of dollars of stock and bond investments.

Its largest previous acquisition was its 1998 takeover of the reinsurer General Re.

S&P is a unit of McGraw-Hill Cos Inc.

Reporting by Jonathan Stempel; editing Bernard Orr