(The following story by Joe Ruff appeared on the Omaha World-Herald website on November 8, 2009.)
OMAHA, Neb. — Burlington Northern Santa Fe Corp. need no longer worry about hedge funds or other “activist investors” that attempt hostile takeovers, said Matthew K. Rose, CEO of the rail company.
That’s what happened two years ago to CSX Corp., which serves the eastern United States, he said. “You get those kind of things when you are a publicly traded company.”
If BNSF shareholders approve the purchase by Omaha-based Berkshire Hathaway Inc., which they are expected to do, the company will reside safely under the wing of Warren Buffett.
“If there is one thing this does, it shields us from that kind of short-term distraction,” Rose said.
“When you think about being lodged in a company such as Berkshire Hathaway, one of the most admired companies in the world, led by the business icon of the day, Warren Buffett, it is a great opportunity.”
Rose, who also is BNSF chairman and president, talked at length Friday about Buffett’s surprising announcement last week that he would purchase BNSF in a $36 billion deal, including assumption of $10 billion in debt.
The purchase has no downside for shareholders, customers or employees, said Rose. Shareholders get a 30 percent premium on the recent share price, customers get a stable partner, and management and employees get an owner who values long-term growth, he said.
Rose said he isn’t worried that Buffett or Berkshire will interfere in Rose’s management of the corporation’s chief subsidiary, BNSF Railway Co. of Fort Worth, Texas.
“Warren told me he doesn’t know how and he doesn’t want to.”
Likewise, no big changes are expected in the railroad’s network, including in Nebraska, where BNSF has more than 4,000 employees and runs a large operation in Alliance, Rose said.
Rose, 50, said he expects to come to Omaha annually to talk with Buffett about BNSF. And Rose plans to attend Berkshire Hathaway’s annual meetings every May, which typically attract more than 30,000 people.
“Our annual meetings at the railroad last about 34 minutes,” Rose said. “I am not sure what to make of an annual meeting that lasts two days.”
In a press release announcing the purchase, Buffett said the investment was a huge bet on the company and on “CEO Matt Rose and his team.”
Rose, a native of Salina, Kan., said he has known Buffett for about 10 years. “He would see us when he was down here. He has gotten to know our business.”
An investment analyst who follows the railroad industry said he knows little of Rose beyond his good track record leading the company. In Forbes magazine’s April 2009 ranking of executive compensation, Rose was No. 1 in the transportation sector, with total compensation over five years of about $140 million.
Jim Cardle, chairman of the Austin (Texas) Economic Club, said Rose is honest, competent, levelheaded and knows the transportation industry.
“Matthew Rose is an absolute star and generally regarded in Texas as one of the best business managers in the country,” Cardle said.
A member of the board of trustees at Texas Christian University in Fort Worth, Rose, who graduated from the University of Missouri, also is chairman of the TCU capital fundraising campaign. BNSF has sponsored a leadership program at the school, said Homer Erekson, dean of Texas Christian’s Neeley School of Business.
“He has high standards, he understands the rail industry and is recognized in national business circles,” Erekson said. “And he is an ethical person. Matt really lives that.”
Burlington wasn’t looking for a buyer when Buffett came calling, Rose said. Although management knew “we had the thousand-pound gorilla in the room at 22.6 percent,” Rose said, referring to the percentage of the company Berkshire previously owned.
“It was my belief he was going to continue as a shareholder at 22.6 percent. This was a surprise. I don’t think totally unexpected, but a surprise.”
Buffett began investing in BNSF in 2006 and gradually built up his holdings.
He made his offer to Rose about two weeks ago, and Rose took it to his board of directors.
“It would have been irresponsible for me to negotiate,” Rose said. “I had no authority, nor did I know whether the company should be a merger candidate.
“Anytime a significant offer is made to the company, in this case the CEO, the board then has the responsibility to look at the offer. In this case, our board hired advisers, bankers, and looking at the long- and short-term opportunities for the company, this meant a compelling value to our shareholders.”
The deal requires shareholder and regulatory approval but is expected to close early next year. BNSF’s board will be dissolved after the acquisition.
Analysts and industry experts have said Buffett’s purchase offer reflects well on the value of railroads, including public companies and BNSF’s chief rival, Omaha-based Union Pacific.
Rose said he agreed. Private ownership isn’t a big deal, he said.
“It’s an awareness of the value of the railroads. I don’t think it’s a shake-up of the rail industry,” Rose said.
Railroads were formed under private ownership, and Southern Pacific was privately owned until Union Pacific bought it in 1996, Rose said. BNSF has been publicly owned for more than a century.
“The railroad industry has seen private and public companies.”