Berkshire May Buy 25 Percent of Railroad

OMAHA, Neb. - Warren Buffett's investment company may boost its stake in Burlington Northern Santa Fe Corp. to 25 percent of the nation's second-largest railroad, according to documents filed with the Securities and Exchange Commission.

Berkshire Hathaway Inc. already owns 15 percent of the Fort Worth, Texas-based railroad after buying nearly 14 million shares of Burlington Northern stock in August.

Burlington Northern said in an SEC filing Friday that Berkshire notified the railroad that it plans to invest nearly $598 million in Burlington Northern stock on top of the 52.13 million shares it already owned. Berkshire sent its notice to the railroad before it bought 845,000 more shares of Burlington Northern stock last Tuesday.

Federal regulators will examine the proposed purchase to determine if it would violate antitrust regulations of the Hart-Scott-Rodino Act.

In another SEC filing late Tuesday, Berkshire revealed it had call options to buy nearly 7.5 million more shares of Burlington Northern.

A call option gives the buyer the right to buy the underlying stock at a future time for a fixed price. Berkshire has until Oct. 3 to exercise its call options.

Berkshire spokeswoman Jackie Wilson said no one was available to comment Tuesday.

Andy Kilpatrick, the stockbroker-author of "Of Permanent Value, the Story of Warren Buffett," said he was surprised by the size of Berkshire's proposed railroad stock purchase.

"That seems like a real aggressive move on it," Kilpatrick said.

Buffett has said railroads have become an appealing investment because they are healthier today than in past years, something he said he was slow to realize because of past poor performance in the industry.

Kilpatrick said it appears that Berkshire is trying to buy as much of Burlington Northern's stock as possible while the price remains around $79 a share.

Shares of Burlington Northern stock gained $1.75, or 2.2 percent Tuesday, to close at $82.90. The stock continued rising in after-hours trading to $84 Tuesday evening.

Railroad industry analyst Randy Cousins said America's major freight railroads, such as BNSF, enjoy strong competitive advantages. That's likely part of the appeal for Buffett, who talks about wanting to buy businesses with large "moats" separating the business from its competitors.

Cousins said the cost of building a railroad and buying the necessary rights of way mean it's nearly impossible for new competitors to emerge.

"You just can't go out and buy the rights of way," said Cousins, an industry analyst with BMO Capital Markets in Toronto.

Railroads benefit from the fact that many goods sold in America are made in Asia and must be transported from ports to the middle of the country, Cousins said. Increases in diesel fuel prices hurt trucking company profits more than railroad profits, he said.

Berkshire's interest in railroads extend beyond Burlington Northern. The Omaha-based company revealed in May that it owned 10.5 million shares of Union Pacific Corp. and nearly 6.4 million shares of Norfolk Southern Corp.

But it's not clear how much Union Pacific and Norfolk Southern stock Buffett's company currently owns because Berkshire obtained permission to omit those investments from its most-recent quarterly stock filing to protect its trading strategy.

Berkshire owns furniture, insurance, jewelry and candy companies, restaurants, natural gas and corporate jet firms and has major investments in such companies as The Coca-Cola Co. and Wells Fargo & Co.

Class A shares of Berkshire stock gained $910, or less than 1 percent, Tuesday to close at $119,300.