Buffett’s biggest investment
BNSF acquisition means stability for key employer
The Fort Worth-based rail transportations company announced Nov. 3 it had come to agreement on a purchase deal valued at $44 billion – including $10 billion in debt – with Buffett’s company, marking the largest acquisition in Berkshire Hathaway’s history. Buffett’s company will purchase the remaining 77.4 percent of BNSF shares Berkshire Hathaway does not currently own for $100 per share in cash and stock.
Burlington Northern employs 40,000 workers total, and 3,100 in Fort Worth.
Included in the announcement, Burlington Northern said it will continue to operate in Fort Worth and that the company does not expect leadership changes.
Buffett’s past Fort Worth investments
John V. Roach, chairman of Roach Enterprises, worked in an advising role with Justin Brands and Acme Brick Co. when Berkshire Hathaway expressed an interest in those companies years ago.
Buffett “came to Fort Worth, talked to the people who would be working directly for him, and made an offer for their stock,” Roach said. “The good news was the management that was in charge of Acme and in charge of Justin Boots, they remained intact then and, to a large extent, with a retirement or two,
are still in place now. Warren, he buys good
managements and he keeps them in place. And, the other thing he does is he keeps the headquarters wherever the companies are that he acquires, so he buys good managements and encourages them to continue and improve their business.”
A few years ago, Roach worked with Buffett again on the sale of another Fort Worth company, electronics components distributor TTI Inc. Following the pattern set by the Justin Brands purchase and Buffett’s investment record, Roach said, TTI Inc.’s management remained in place, and the company remained in Fort Worth.
But, not all of Buffett’s investments in Fort Worth companies have paid off. For instance, he once owned as much as 9 percent of stock in Pier 1 Imports Inc., but sold his shares in 2007 as the company continued to slide.
Fort Worth impact
David Berzina, executive vice president of economic development for the Fort Worth Chamber of Commerce, said Berkshire Hathaway’s purchase of BNSF shines a positive light on North Texas, and added that the company’s business investments in Fort Worth – Acme Brick and Justin Brands, TTI Inc. and now BNSF – are a sign of the city’s business ethics.
“If you think about it for a second, it’s one thing to have companies in Fort Worth that are purchased by Berkshire Hathaway, but then if you drill down one more level, the companies are run by individuals, and the individuals live in and around Fort Worth, Texas,” Berzina said. “So, clearly, it says something about the work ethic, the education and the mindset of the people that work in and manage the companies that Berkshire Hathaway has purchased.”
Fort Worth Mayor Mike Moncrief said Buffett’s purchase of the railroad shows Buffett’s confidence in Burlington Northern’s CEO Matt Rose and the company’s leadership team.
“This is a testament to the success of this railroad and to the folks who have worked so successfully with us under the diligent leadership of Matt Rose, a great CEO,” Moncrief said.
U.S. economic recovery
Moncrief added that Buffett’s purchase is an investment in the railroad industry and rail technology as a whole.
“When you acquire the second largest railroad in the country during the throes of a recession, you are saying that this is probably going to be a tremendous investment as the economy itself recovers and more demand will be present for delivery of freight and goods,” he said.
As a result of the recession, BNSF began seeing its demand, shipping, and revenue levels drop in the fourth quarter of 2008, and those levels continued to fall through the first half of 2009 and into the company’s third quarter.
A day before the Nov. 3 purchase announcement, BNSF’s stock traded on the New York Stock Exchange at under $80 a share. One day later, the company’s stock was trading up at nearly $100 a share.
Buffett investing in BNSF sends a larger statement about his outlook for the U.S. economy, said Dana Johnson, an economist with Dallas-based Comerica Bank. As the U.S. economy grows, imports and exports will continue to increase and BNSF will become a profitable investment, he said.
Thomas Moeller, an assistant professor of finance at Texas Christian University, agrees.
“The acquisition is pretty much a bet on the recovery of the U.S. economy. We’ve lost a lot of imports and exports, and the [rail] companies are fairly depressed,” he said. “So, in kind of a typical Buffett long-term bet, he’s an investor who has a lot of money and resources to invest in a company long-term.”
Despite the recession’s affect on the company, Buffett said in a statement that his investment in BNSF was an “all-in wage” on the economic future of the United States.
“Our country’s future prosperity depends on its having an efficient and well-maintained rail system,” Buffett said. “Conversely, America must grow and prosper for railroads to do well. Berkshire’s $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry.”
Berkshire Hathaway has made significant purchases of BNSF stock over the past several years, growing its stake in the company to 18 percent and 22 percent in 2008 and early 2009, respectively, with stated intentions to gather more.
BNSF’s philanthropy to continue
Every year, Burlington Northern employees participate in a number of charitable projects around Fort Worth. In 2008, the BNSF Foundation gave $1.7 million to local charities.
One effort is the company’s involvement in the United Way campaign for Tarrant County, in which employees contribute along with a full BNSF company match. Also, company executives sit on various boards of charitable organizations in Tarrant County, and employees are encouraged to participate in team building activities through charity work at a number of area organizations, including SafeHaven of Tarrant County, Presbyterian Night Shelter and the local Salvation Army.
These programs, along with educational programs the company supports and nationwide Burlington Northern philanthropy efforts, will continue in the future, and be unchanged by the Berkshire Hathaway purchase.
“BNSF will continue to support organizations and community projects in the communities where we operate,” said Joe Faust, BNSF’s director of public affairs.
Berkshire Hathaway’s full acquisition of BNSF should be completed in the first quarter of 2010.
“We are thrilled to have the opportunity to become a part of the Berkshire Hathaway family,” Matthew K. Rose, Burlington Northern’s chairman, president and CEO, said in a statement. “We admire Warren’s leadership philosophy supporting long-term investment that will allow BNSF to focus on future needs of our railroad, our customers and the U.S. transportation infrastructure. This transaction offers compelling value to our shareholders and is in the best interests of all of our constituents including our customers and employees.”
