(The following story by John D. Boyd appeared on The Journal of Commerce website on November 18, 2009.)
WASHINGTON, D.C. — The top economic regulator of U.S. railroads said the potential for his agency to have a role reviewing Warren Buffett’s planned purchase of BNSF Railway “is looking more and more remote.”
Daniel Elliott, chairman of the Surface Transportation Board, which reviews rail mergers, oversees rail disputes with freight shippers and estimates railroad capital costs in relation to setting some freight rates, made the remarks Nov. 18 before the Transportation Research Forum in Washington, D.C.
Buffett’s Berkshire Hathaway investment firm said Nov. 3 it will pay over $26 billion to buy remaining BNSF shares and will assume $10 billion in BNSF debt, with the deal expected to close early in 2010.
BNSF officials and rail analysts have said they do not expect any STB review of the deal, since while Berkshire held some stock in two other railroads – Union Pacific Railroad and Norfolk Southern Railway — this acquisition does not involve a merger of railroads such as the STB examines.
Now, the head of the STB is indicating he agrees.
“Since the deal was announced,” Elliott said, “we have been asked whether the STB would have jurisdiction over any aspects of this transaction. That is looking more and more remote. Under our rules for exploring mergers it appears Berkshire Hathaway would certainly be considered a non-carrier, because Berkshire has said it would divest its non-controlling number of shares in UP and Norfolk Southern.”
Buffett in recent days said he has already sold the other rail holdings, in view of his BNSF deal. (See “Buffett Sells Non-BNSF Rail Holdings” http://www.joc.com/node/414694)
Observers, though, say the deal will have an impact on the STB. It could alter the agency’s important cost of capital formula for major railroads, for instance, which in turn helps determine some freight pricing.
Some have also questioned whether the STB will allow the 31 percent stock price premium Berkshire is paying to be built into BNSF’s regulatory valuation, which could also be used to justify higher rates.
Elliott, however, signaled that these types of issues are unlikely to involve the agency in a review of the acquisition. Instead, his remarks indicated the key issue is treating Berkshire as a non-carrier buying a railroad, rather than a rail merger.