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Showing posts with label Buffett. Show all posts
Showing posts with label Buffett. Show all posts
Tuesday, December 1, 2009
Wednesday, November 18, 2009
IndustryWeek.com | Railways Looking to Cash In Next Year - The economic slump has proven to be a boon for the railroads
November 18, 2009 - Warren Buffett caused a lot of head-scratching when he agreed to purchase Burlington Northern Santa Fe Corp. (BNSF), the biggest railroad in the United States, for $26.3 billion. His company, Berkshire Hathaway Inc., broke from its usual pattern of acquiring companies that offer quick, double-digit returns. A railroad is seen more as a steady if unspectacular investment. However, Buffett sees the acquisition as "an all-in wager on the economic future of the United States. I love these bets.".....
Saturday, November 14, 2009
Examiner.com | BNSF sued over deal with Warren Buffett's Berkshire Hathaway
November 14, 2009 - At least three shareholders of Burlington Northern Santa Fe Corp. have sued the railroad company since the deal with Berkshire Hathaway was announced, reports the Forth Worth Star-Telegram.The Star-Telegram reports that the suits, which were filed in Tarrant County, Tex., district court, allege that BNSF management shortchanged shareholders by agreeing to a price that was too low.
The deal with BNSF vaues Burlington at $34 billion, not including the company's $10 billion in debt. BNSF shareholders will receive $100 a share under the deal. The stock had been trading around $75 a share before the deal was announced.
The Wall Street Journal reported soon after the deal was inked that the BNSF board did indeed press Warren Buffett for more money, but the Berkshire chief said $100 a share was as high as he could go. FULL STORY
Wednesday, November 11, 2009
Monday, November 9, 2009
AP | Warren Buffett's Berkshire to sell Union Pacific, Norfolk Southern railroad stakes
Berkshire to sell UP, Norfolk Southern stakes
OMAHA, Neb. — Warren Buffett's company will sell its stakes in Union Pacific and Norfolk Southern railroads before it completes its $26.3 billion acquisition of Burlington Northern Santa Fe Corp. railroad.
Berkshire Hathaway Inc.'s plan to sell those stocks was revealed in documents filed with the Securities and Exchange Commission on Monday.
According to a transcript of a conference call, BNSF's CEO Matt Rose told employees of his Fort Worth, Texas-based railroad that Berkshire plans to sell its 9.6 million shares of Union Pacific Corp. and 1.9 million shares of Norfolk Southern Corp.
Berkshire owns 22.6 percent of BNSF's stock, and last Tuesday, it announced a plan to acquire the rest for $100 per share.
Berkshire officials did not immediately respond to questions on Monday.
Saturday, November 7, 2009
Warren Buffett And The G20
November 7, 2009 - The G20 Finance Ministers and Central Bank governors are meeting today in St. Andrews, talking about the data they will need to look at in order to monitor each other’s economic performance and sustain growth (seriously).
The underlying idea is that if you talk long enough about the US current account deficit and the Chinese surplus, stuff happens and the imbalances will take care of themselves – or move on to take another form.
Warren Buffett seems to agree.
Buffett’s big investment in railroads looks like a shrewd way to bet on growth in emerging markets – which is where most incremental demand for US raw materials and grain comes from. It’s also a polite way to bet against the dollar or, even more politely, on an appreciation of the renminbi. FULL STORY
Thursday, November 5, 2009
Galesburg, Illinois | BNSF employees will ‘wait and see’ - Worker optimistic, says many ‘curious’ right now
The Register-MailPosted Nov 05, 2009 @ 10:31 AM
Most reaction to the sale of the BNSF Railway to Warren Buffett’s investment firm Berkshire Hathaway has been positive. An active Galesburg employee of the railroad said Wednesday he’s optimistic, but many employees are waiting to see what happens.
The employee, who requested anonymity because he was not authorized by the company to comment on the sale, based his optimism on Buffett’s track record.
“I think it’s probably going to be a real good thing,” the employee said, “because I’ve done some research on Warren Buffett in the past and watched some of the things he’s done. The fact he went in and offered (BN CEO) Matt Rose the proper amount of money for the company ... then Matt Rose saying it took the board 15 minutes to approve the sale, that told me Warren Buffett was ready to buy the company.”
The Burlington Northern and the Santa Fe merged in 1996. According to The Associated Press, Berkshire’s biggest acquisition before BNSF was the $16 billion stock purchase of reinsurance giant General Re announced in 1998. Berkshire Hathaway paid $100 a share for BNSF, or 31 percent more than what the railroad’s stock closed on Monday. The purchase price was $34 billion, but the total deal is $44 billion, because Berkshire is assuming $10 billion in BNSF debt.
Analysts who follow Berkshire say the BNSF deal will reshape the company because of the railroad’s size. Justin Fuller, who works with Midway Capital Research & Management in Chicago and writes about Berkshire online at www.buffettologist.com, said this is the kind of elephant deal that Buffett seems to be able to find once every five or six years.
Buffett has said he realized a few years late that railroads had become an appealing investment because they are healthier today than in past years. Berkshire is buying BNSF at a time when railroad profits are down because of the recession. But as diesel prices rise, shipping by rail instead of truck will only become more attractive.
“It’s a very effective way of moving goods. I basically believe this country will prosper and you’ll have more people moving more goods 10 and 20 and 30 years from now, and the rails should benefit,” Buffett told CNBC Tuesday.
Morningstar analyst Bill Bergman said he thinks Berkshire’s acquisition of BNSF is consistent with Buffett’s long-term philosophy, and the timing is good for the investment.
Bergman said he thinks BNSF will be a good fit with Berkshire’s other operating companies, and that could be important even with Berkshire’s hands-off management style.
“It’s not just energy prices,” Bergman said. “I think the fit with the operating subsidiaries is important.”
The BNSF employee agreed with the experts.
“In general, I think it’s a great thing,” he said. “I just don’t see anything negative about this. I don’t think he’s a micro-manager.”
Asked about the reaction from other local BNSF employees, the man said, “Everyone is kind of curious. I’m not saying they think it’s a negative thing or they think it’s a positive thing. I think they’re taking a wait-and-see attitude and see where this leads. A lot of guys don’t know a lot about Warren Buffett.”
Berkshire Hathaway owns companies in businesses as diverse as clothing to car insurance to food, including Fruit of the Loom, Geico and Dairy Queen.
BNSF had $18 billion in revenue in 2008, with a profits of $2.1 billion. The railroad has a 49 percent market share among railroads competing in the western United States.
About 1,115 people are employed by the BNSF in Galesburg, which is home to the railroad’s second largest classification yard.
Most reaction to the sale of the BNSF Railway to Warren Buffett’s investment firm Berkshire Hathaway has been positive. An active Galesburg employee of the railroad said Wednesday he’s optimistic, but many employees are waiting to see what happens.
The employee, who requested anonymity because he was not authorized by the company to comment on the sale, based his optimism on Buffett’s track record.
“I think it’s probably going to be a real good thing,” the employee said, “because I’ve done some research on Warren Buffett in the past and watched some of the things he’s done. The fact he went in and offered (BN CEO) Matt Rose the proper amount of money for the company ... then Matt Rose saying it took the board 15 minutes to approve the sale, that told me Warren Buffett was ready to buy the company.”
The Burlington Northern and the Santa Fe merged in 1996. According to The Associated Press, Berkshire’s biggest acquisition before BNSF was the $16 billion stock purchase of reinsurance giant General Re announced in 1998. Berkshire Hathaway paid $100 a share for BNSF, or 31 percent more than what the railroad’s stock closed on Monday. The purchase price was $34 billion, but the total deal is $44 billion, because Berkshire is assuming $10 billion in BNSF debt.
Analysts who follow Berkshire say the BNSF deal will reshape the company because of the railroad’s size. Justin Fuller, who works with Midway Capital Research & Management in Chicago and writes about Berkshire online at www.buffettologist.com, said this is the kind of elephant deal that Buffett seems to be able to find once every five or six years.
Buffett has said he realized a few years late that railroads had become an appealing investment because they are healthier today than in past years. Berkshire is buying BNSF at a time when railroad profits are down because of the recession. But as diesel prices rise, shipping by rail instead of truck will only become more attractive.
“It’s a very effective way of moving goods. I basically believe this country will prosper and you’ll have more people moving more goods 10 and 20 and 30 years from now, and the rails should benefit,” Buffett told CNBC Tuesday.
Morningstar analyst Bill Bergman said he thinks Berkshire’s acquisition of BNSF is consistent with Buffett’s long-term philosophy, and the timing is good for the investment.
Bergman said he thinks BNSF will be a good fit with Berkshire’s other operating companies, and that could be important even with Berkshire’s hands-off management style.
“It’s not just energy prices,” Bergman said. “I think the fit with the operating subsidiaries is important.”
The BNSF employee agreed with the experts.
“In general, I think it’s a great thing,” he said. “I just don’t see anything negative about this. I don’t think he’s a micro-manager.”
Asked about the reaction from other local BNSF employees, the man said, “Everyone is kind of curious. I’m not saying they think it’s a negative thing or they think it’s a positive thing. I think they’re taking a wait-and-see attitude and see where this leads. A lot of guys don’t know a lot about Warren Buffett.”
Berkshire Hathaway owns companies in businesses as diverse as clothing to car insurance to food, including Fruit of the Loom, Geico and Dairy Queen.
BNSF had $18 billion in revenue in 2008, with a profits of $2.1 billion. The railroad has a 49 percent market share among railroads competing in the western United States.
About 1,115 people are employed by the BNSF in Galesburg, which is home to the railroad’s second largest classification yard.
Tuesday, November 3, 2009
Star-Telegram.com | Buffett cuts BNSF deal at Fort Worth's Ashton Hotel
Posted Tuesday, Nov. 03, 2009
When Berkshire Hathaway announced Tuesday that it wanted to buy the shares it didn’t own in Fort Worth-based Burlington Northern Santa Fe railroad company, things started falling into place for Matt Mildren.
Mildren owns The Ashton Hotel in downtown Fort Worth, where Warren Buffett, Berkshire’s chief executive, and the rest of the Berkshire Hathaway board met two weeks ago for one of its annual off-site meetings.
“Now I understand why Mr. Buffett wanted all the staff out of the Ashton wine cellar Thursday night,” Mildren said Tuesday.
On the first night of their stay, Buffett had a private board dinner in the Ashton’s wine cellar and the hotel staff was under strict orders not come in the room unless otherwise summoned, Mildren said.
“I’m honored and hugely humbled, to say the least, that the biggest Berkshire Hathaway investment in history was cut at the little Ashton Hotel in downtown Fort Worth,” Mildren said.
Berkshire Hathaway booked the hotel six months ago, but based on Buffett’s comments on national television early Tuesday morning, the deal with BNSF wasn’t cut until Buffett arrived in Fort Worth on Oct. 22. The board meeting ended two days later.
Buffett even mentioned The Ashton — a 39-room boutique hotel at 610 Main St. — in his network interview. Mildren is appreciative for the plug, but said he fielded calls from friends wanting to know if he knew about the pending deal.
Buffett was appreciative, too. On Friday, The Ashton staff received a 5-pound box of See’s chocolates. Berkshire owns the California-based candy maker.
SANDRA BAKER, 817-390-7727
AP | Warren Buffett's Berkshire Hathaway Inc. - Tuesday agreed to buy Burlington Northern Santa Fe Corp - $34 Billion
NEW YORK – Making a $34 billion bet on the future of the U.S. economy, Warren Buffett's Berkshire Hathaway Inc. on Tuesday agreed to buy Burlington Northern Santa Fe Corp.
"Berkshire's $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry," Buffett said in a statement.
"Most important of all, however, it's an all-in wager on the economic future of the United States. I love these bets," he said.
Berkshire Hathaway already owns about 22 percent of Burlington Northern, and said it will pay $100 a share in cash and stock for the rest of the company, a 31.5 percent premium on Burlington Northern's Monday closing price. Shareholders have the option to convert their stock for a cash payment of $100 per share or receive Berkshire Class A or Class B common stock. Up to 60 percent of the deal is cash and 40 percent is in stock.
The majority of the stock in the deal will be Berkshire's "A" shares, but Berkshire's board also approved a 50-for-1 split of its Class B common stock for holders of smaller amounts of Burlington shares who opt for a share exchange rather than cash. Berkshire's Class B shares closed Monday at $3,265. With the split, each share will be worth $65.30. Burlington shares closed Monday at $76.07. The shares shot up 29 percent to $98.13 in premarket trading. Shares of other major rails rose as well.
The deal has been approved by the boards of both companies. It would be the biggest acquisition ever for Berkshire Hathaway Inc.
Berkshire also owns MidAmerican Energy Holdings, which controls power companies in the Midwest and Pacific Northwest. The railroad could be a strategic acquisition because its tracks run right through both regions, a major coal supply route for power plants.
The chairman of MidAmerican Energy has come out vocally against climate change legislation which targets coal-fired power plants.
Burlington Northern Santa Fe is the country's second-largest railroad with a market capitalization — the market value of the company's outstanding shares — of about $25.9 billion.
Last month the company reported third-quarter profit dropped 30 percent to $488 million, or $1.42 per share, as people continued to hold back on purchasing goods from stores and industrial production continued to struggle.
RELATED:
"Berkshire's $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry," Buffett said in a statement.
"Most important of all, however, it's an all-in wager on the economic future of the United States. I love these bets," he said.
Berkshire Hathaway already owns about 22 percent of Burlington Northern, and said it will pay $100 a share in cash and stock for the rest of the company, a 31.5 percent premium on Burlington Northern's Monday closing price. Shareholders have the option to convert their stock for a cash payment of $100 per share or receive Berkshire Class A or Class B common stock. Up to 60 percent of the deal is cash and 40 percent is in stock.
The majority of the stock in the deal will be Berkshire's "A" shares, but Berkshire's board also approved a 50-for-1 split of its Class B common stock for holders of smaller amounts of Burlington shares who opt for a share exchange rather than cash. Berkshire's Class B shares closed Monday at $3,265. With the split, each share will be worth $65.30. Burlington shares closed Monday at $76.07. The shares shot up 29 percent to $98.13 in premarket trading. Shares of other major rails rose as well.
The deal has been approved by the boards of both companies. It would be the biggest acquisition ever for Berkshire Hathaway Inc.
Berkshire also owns MidAmerican Energy Holdings, which controls power companies in the Midwest and Pacific Northwest. The railroad could be a strategic acquisition because its tracks run right through both regions, a major coal supply route for power plants.
The chairman of MidAmerican Energy has come out vocally against climate change legislation which targets coal-fired power plants.
Burlington Northern Santa Fe is the country's second-largest railroad with a market capitalization — the market value of the company's outstanding shares — of about $25.9 billion.
Last month the company reported third-quarter profit dropped 30 percent to $488 million, or $1.42 per share, as people continued to hold back on purchasing goods from stores and industrial production continued to struggle.
RELATED:
Wall Street Journal - - 18 minutes ago
Berkshire Hathaway Inc. said it will acquire the 77.4% of Burlington Northern Santa Fe Corp. it doesn't already own for $26 billion in cash and ...
Buffett to Buy Burlington Northern In $34 Billion Deal New York Times
Buffett's firm to buy Burlington Northern CNNMoney.com
Berkshire buys Burlington Northern MarketWatch
Bloomberg - - 20 minutes ago
Nov. 3 (Bloomberg) -- US stock-index futures fell, indicating the Standard & Poor's 500 Index will resume its drop, as a wider-than-estimated ...
Wednesday, October 21, 2009
SunTimes.com | Buffett invested $5 billion of Berkshire's money last year into Goldman Sachs Group Inc.
October 21, 2009 - Wall Street bonuses in 2008 fell 44 percent from the prior year to $18.4 billion, according to the New York state Comptroller.
Goldman, led by CEO Lloyd Blankfein, set aside $16.7 billion to pay employees so far this year. That's enough to pay each worker $527,192. The New York-based bank repaid $10 billion it got from Treasury and reported a jump in third-quarter profit. JPMorgan Chase & Co., which repaid $25 billion of U.S. funds, said profit surged almost sevenfold in the quarter....
Tuesday, October 13, 2009
TheGlobeAndMail.com | Dollar's drop brings in billions for Coke - Warren Buffett favors Coke over Pepsi - he owns the most of any investor
The 14-month decline in the U.S. dollar against major currencies is scary for Americans. The U.S. has always been proud of a strong currency, and a depreciating dollar makes everything we import more expensive. While it makes our exports more attractive, goods produced here and sold abroad account for a small part of the economy.
For Coca-Cola (KO-N54.790.140.26%), however, the falling dollar helps juice earnings. In the footnotes of its second-quarter regulatory filings, Atlanta-based Coke says it made an extra $1.1-billion (U.S.) abroad due to currency translations. To put that in perspective, Coke posted net income of $2.05 billion during the quarter. (The currency gain is theoretical, in that the company hasn't realized it on its income statement.)
The foreign-currency variable highlights a factor in Coke's business model that should serve the company well. International diversification has made the company resilient in the face of a weak American economy.
Besides currency-translation adjustments, Coke's investments in bottlers around the world have performed well. Excluding Coca-Cola Enterprises, bottling investments for the company have been assigned a fair value of more than $3-billion above the carrying value, the worth of an asset according to its balance-sheet account balance. The network has diversified Coke's revenue streams, making North America just another competitive front.
North America accounts for more than a quarter of revenue, only surpassed by bottling income, but it makes up only 19% of operating income, less than the European Union, Pacific region and Latin America do. Pepsi, Coke's archrival, derives more than half of revenue and operating income from the U.S. Billionaire investor Warren Buffett favors Coke over Pepsi, incidentally. He owns 8.6% of the company, the most of any investor and about the same as the combined holdings of Vanguard, Fidelity and State Street(STT Quote). FULL STORY
Monday, October 12, 2009
Saturday, October 3, 2009
GuruFocus.com | Burlington Northern Santa Fe (BNI) - Warren Buffett’s Journey West at Berkshire Hathaway
Oct. 02, 2009 |At the 2007 Wesco Annual shareholder meeting, Charlie Munger was asked about Berkshire’s purchase of a stake in Burlington Northern (BNI). Munger commented as follows, “Railroads – now that’s an example of changing our minds. Warren and I have hated railroads our entire life. They’re capital-intensive, heavily unionized, with some make-work rules, heavily regulated, and long competed with a comparative disadvantage vs. the trucking industry, which has a very efficient method of propulsion (diesel engines) and uses free public roads. Railroads have long been a terrible business and have been lousy for investors.
We did finally change our minds and invested. We threw out our paradigms, but did it too late. We should have done it two years ago, but we were too stupid to do it at the most ideal time. There’s a German saying: Man is too soon old and too late smart. We were too late smart. We finally realized that railroads now have a huge competitive advantage, with double stacked railcars, guided by computers, moving more and more production from China, etc. They have a big advantage over truckers in huge classes of business.
Bill Gates figured this out years before us – he invested in a Canadian railroad and made eight hundred percent. Maybe Gates should manage Berkshire’s money. This is a good example of how hard it is to change one’s mind and change entrenched thinking, but at last we did change. The world changed and, way too slowly, we recognized this.”
Since that purchase two years ago, Berkshire has added to its position and the stock is basically trading at the same price it was two years ago. Is it time for investors to get on board?
Company Description
Burlington Northern Santa Fe Corporation is a holding company. Through its subsidiaries, BNI is engaged primarily in the freight rail transportation business. BNSF Railway Company (BNSF Railway) is the Company’s principal operating subsidiary. BNSF Railway operates various facilities and equipment to support its transportation system, including its infrastructure and locomotives and freight cars. It also owns or leases other equipment to support rail operations, including containers, chassis and vehicles.
BNSF Railway operates one of the railroad networks in North America with approximately 32,000 route miles of track, excluding multiple main tracks, yard tracks and sidings, approximately 23,000 miles, of which are owned route miles, including easements, in 28 states and two Canadian provinces.
In 1980, the Staggers Act was signed that largely deregulated the railroad industry since the passage of the 1887 Interstate Commerce Act. Not surprisingly, the industry underwent significant consolidation over the next 20 years bringing the number of class I railroads (a railroad company with over $320 million revenues) from 30 businesses to seven today. In the United States, Burlington and Union Pacific effectively hold a duopoly over the western half of the country, while CSX and Norfolk Southern hold a duopoly over the eastern half of the United States.
Thesis
North American railroads own assets that are practically impossible to replicate. Even though there are tremendous barriers to entry, railroads generally failed to earn a return on their investment greater than their cost of capital. BNI, however has successfully generated returns on equity over 18% for the past few years and generated an average free cash yield of 7% for nearly ten years.
The competitive advantage of any railroad is its geography: BNI operates in defensive industries such as coal and agriculture. Additionally, Wyoming’s Powder River Basin is considered the cheapest form of energy in the country. With domestic power plants coming online, it is unlikely that demand for coal is going to decrease any time soon.
While it has a strong presence in the Powder River Basin, BNI also has the Southern Transcon line from Los Angeles to Chicago, which is well-positioned to respond to strong U.S. demand for Asian goods shipped by intermodal containers.
Furthermore, as Morningstar highlights, BNI stands to benefit from the repricing of older contracts that are approaching expiration. Old contracts were signed before the rail renaissance of the past few years, and many agreements predate the widespread use of effective fuel surcharges. Two thirds of coal contracts expire within four years, presenting an opportunity for BNSF to expand earnings by instituting higher contract prices in today's favorable rail market.
Valuation and Conclusion
With a weak economy, yes, revenues have fallen as have earnings. When the economy turns is anyone’s guess. As Munger mentioned above, these are capital intensive businesses. However, are P/E ratios and EBITDA multiples the right way to analyze Burlington?
To truly appreciate why Berkshire believes in the business and would not look at for five years, one has to understand the replacement value of railroad. Right of way was given away to railroads during the 1800’s to incent construction to develop the western half of the United States and to increase commerce. That will never happen again as long as we live (and beyond). You can absolutely buy the “right of way” in the middle of Nevada for probably a few thousand dollars per mile, but your track will never connect to the Port of Los Angeles and so it’s useless.
In order to recreate a railroad, the following costs would have to be accounted for: 1) material; 2) labor and 3) the real estate below the railroad. From analyst estimates, the first two costs would suggest value BNI at least 50% higher than where it is today. The real estate, even with the meltdown, cannot be estimated. Thus, BNI cannot be replicated. Is it any surprise that Berkshire owns nearly 20% of stock?
We did finally change our minds and invested. We threw out our paradigms, but did it too late. We should have done it two years ago, but we were too stupid to do it at the most ideal time. There’s a German saying: Man is too soon old and too late smart. We were too late smart. We finally realized that railroads now have a huge competitive advantage, with double stacked railcars, guided by computers, moving more and more production from China, etc. They have a big advantage over truckers in huge classes of business.
Bill Gates figured this out years before us – he invested in a Canadian railroad and made eight hundred percent. Maybe Gates should manage Berkshire’s money. This is a good example of how hard it is to change one’s mind and change entrenched thinking, but at last we did change. The world changed and, way too slowly, we recognized this.”
Since that purchase two years ago, Berkshire has added to its position and the stock is basically trading at the same price it was two years ago. Is it time for investors to get on board?
Company Description
Burlington Northern Santa Fe Corporation is a holding company. Through its subsidiaries, BNI is engaged primarily in the freight rail transportation business. BNSF Railway Company (BNSF Railway) is the Company’s principal operating subsidiary. BNSF Railway operates various facilities and equipment to support its transportation system, including its infrastructure and locomotives and freight cars. It also owns or leases other equipment to support rail operations, including containers, chassis and vehicles.
BNSF Railway operates one of the railroad networks in North America with approximately 32,000 route miles of track, excluding multiple main tracks, yard tracks and sidings, approximately 23,000 miles, of which are owned route miles, including easements, in 28 states and two Canadian provinces.
In 1980, the Staggers Act was signed that largely deregulated the railroad industry since the passage of the 1887 Interstate Commerce Act. Not surprisingly, the industry underwent significant consolidation over the next 20 years bringing the number of class I railroads (a railroad company with over $320 million revenues) from 30 businesses to seven today. In the United States, Burlington and Union Pacific effectively hold a duopoly over the western half of the country, while CSX and Norfolk Southern hold a duopoly over the eastern half of the United States.
Thesis
North American railroads own assets that are practically impossible to replicate. Even though there are tremendous barriers to entry, railroads generally failed to earn a return on their investment greater than their cost of capital. BNI, however has successfully generated returns on equity over 18% for the past few years and generated an average free cash yield of 7% for nearly ten years.
The competitive advantage of any railroad is its geography: BNI operates in defensive industries such as coal and agriculture. Additionally, Wyoming’s Powder River Basin is considered the cheapest form of energy in the country. With domestic power plants coming online, it is unlikely that demand for coal is going to decrease any time soon.
While it has a strong presence in the Powder River Basin, BNI also has the Southern Transcon line from Los Angeles to Chicago, which is well-positioned to respond to strong U.S. demand for Asian goods shipped by intermodal containers.
Furthermore, as Morningstar highlights, BNI stands to benefit from the repricing of older contracts that are approaching expiration. Old contracts were signed before the rail renaissance of the past few years, and many agreements predate the widespread use of effective fuel surcharges. Two thirds of coal contracts expire within four years, presenting an opportunity for BNSF to expand earnings by instituting higher contract prices in today's favorable rail market.
Valuation and Conclusion
With a weak economy, yes, revenues have fallen as have earnings. When the economy turns is anyone’s guess. As Munger mentioned above, these are capital intensive businesses. However, are P/E ratios and EBITDA multiples the right way to analyze Burlington?
To truly appreciate why Berkshire believes in the business and would not look at for five years, one has to understand the replacement value of railroad. Right of way was given away to railroads during the 1800’s to incent construction to develop the western half of the United States and to increase commerce. That will never happen again as long as we live (and beyond). You can absolutely buy the “right of way” in the middle of Nevada for probably a few thousand dollars per mile, but your track will never connect to the Port of Los Angeles and so it’s useless.
In order to recreate a railroad, the following costs would have to be accounted for: 1) material; 2) labor and 3) the real estate below the railroad. From analyst estimates, the first two costs would suggest value BNI at least 50% higher than where it is today. The real estate, even with the meltdown, cannot be estimated. Thus, BNI cannot be replicated. Is it any surprise that Berkshire owns nearly 20% of stock?
Wednesday, September 16, 2009
Friday, September 4, 2009
BNSF taking advantage of Memphis's geography and infrastructure to bolster intermodal business, viewed as a greener alternative to long-haul trucking
http://www.commercialappeal.com/news/2009/sep/04/nothing-like-it/
RELATED:
Jan 11, 2009 ... Ever since the first quarter of 2007, Warren Buffett's Bershire Hathaway (BRK.A) has been buying into Burlington Northern Santa Fe Corp. ...
Monday, August 24, 2009
William Freehling - Warren Buffett Examiner | Recent Warren Buffett articles - August 24, 2009
Procter & Gamble sold its global pharmaceuticals business to Warner Chilcott for an up-front cash payment of $3.1 billion, the two companies...
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BYD Co. plans to sell an electric car in the U.S. next year, The Wall Street Journal reports today. Warren Buffett's Berkshire Hathaway owns about 10...
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Warren Buffett's big bet on the long-term direction of stock prices could get a big boost from a nemesis he warned about this week. Buffett cautioned...
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Warren Buffett is more popular in Singapore and Hong Kong than he is in the United States, by one measure anyway. In the past year, the search term...
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Warren Buffett and corporate America are on the same wavelength when it comes to the attractiveness of corporate bonds. The Wall Street Journal...
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Sears Holdings Corp. Chairman Eddie Lampert seems to be living proof (for now) of one of Warren Buffett's better-known quotes: "When a management...
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Berkshire Hathaway's NetJets unit, which has had a tough year, got some good news from the U.S. Department of Defense this week. The private jet...
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Warren Buffett warned in a New York Times op-ed this week that inflation could run rampant if the federal government doesn't pull in the reins on...
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Thursday, August 20, 2009
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