(Bloomberg News circulated the following story by Nancy Kercheval on April 9.)
NEW YORK — Warren Buffett’s Berkshire Hathaway Inc. bought a 10.9 percent stake in Burlington Northern Santa Fe Corp. to become the largest shareholder at a time when rail stocks were hovering close to their all-time highs.
Berkshire had accumulated 39 million shares of the second- largest U.S. railroad as of April 5, paying between $81.18 and $81.80 for the final 1.6 million, according to filings with the Securities and Exchange Commission.
Buffett, the world’s second-richest man, made his investment name by transforming Berkshire from a failing textile manufacturer into a $168 billion holding company by buying stocks that were out of favor. He told investors in his annual letter in 2000 that what gets Berkshire’s attention is “a comfortable business at a comfortable price.”
This is not “a typical investment” for Buffett, said Donald Broughton, a senior analyst with A.G. Edwards & Sons Inc. in St. Louis. “The industry is at peak operating margins and peak valuations.”
On April 5, Burlington Northern rose $1.03 to $82.72, 4 percent shy of its closing $86.84 record high on April 24, 2006. Union Pacific Corp., the largest U.S. railroad, traded at $103.20, slightly lower than its closing high of $104.49 set on Feb. 14.
Accumulating Shares
Buffet told CNBC today that he bought stakes in two other major North American railroads. Buffett, who declined to identify the companies, said he invested $700 million in one railroad and slightly less in the other.
Broughton downgraded Burlington Northern to hold from buy last year based on the valuation.
“Just because Warren Buffett made an investment doesn’t make it a good investment,” he said.
The Standard & Poor’s 500 Railroads Index, which consists of Burlington Northern, Union Pacific, CSX Corp. and Norfolk Southern Corp., closed at a record 400.79 on Feb. 14. The index traded at 393.85 on April 5. Burlington Northern’s shares have risen 12 percent this year compared with an 11 percent gain in the railroads index.
Buffett, 76, didn’t indicate when he started accumulating the railroad shares other than to advise his stockholders on Feb. 28 that he didn’t itemize two holdings valued at $1.9 billion “because we continue to buy them. I could of course, tell you their names. But then I would have to kill you.”
Berkshire Treasurer Marc Hamburg declined to comment over the weekend on Burlington Northern purchase. Dick Russack, a Burlington Northern spokesman, didn’t return phone messages yesterday.
Western Railroad
The market value of the Berkshire Hathaway’s Burlington Northern stake is $3.2 billion, making it the company’s seventh largest holding by market value following Coca-Cola Co., American Express Co., Wells Fargo & Co., Procter & Gamble Co., Moody’s Corp. and PetroChina Co.
Railroad stocks have been rising as hedge funds and private-equity funds have been buying, said independent analyst Anthony Hatch of New York.
“Buffett is a long-term investor and BNSF is an excellent long-term holding,” he said. “Buffett buys and holds; he’s not the hedge fund community.”
Although the freight economy slowed since September, Hatch said, “Rail stocks have done well as they reinvented themselves. The industry is not like its historic past.”
Burlington Northern focuses on intermodal transportation, in which products travel from ships and trucks to railroads. As one of the two main Western U.S. railroads, it transports Asian imports that arrive at the California ports. It also ships grain and coal, which helped boost its fourth-quarter profit 21 percent in 2006.
Largest Holder
Intermodal traffic was up 0.2 percent to 2.9 million trailers and containers in the first quarter, according to the Association of American Railroads.
Buffett’s stock purchases make him the largest shareholder of Burlington Northern, ahead of Marsico Capital Management LLC, which owned 32 million shares for an 8.9 percent stake in December, according to data compiled by Bloomberg.
Berkshire B-class shares fell $3 to $3,626 on April 5 in New York Stock Exchange composite trading. The A-class shares rose $299 to $108,849.