Monday, 30 November 2009

Buffett gambles £27bn on rail to get back on track

Buffett gambles £27bn on rail to get back on track
Warren Buffett has placed the largest single wager of his investing career, gambling on "the economic future of the United States" by taking control of the American rail giant Burlington Northern Santa Fe in a $44bn (£27bn) deal.

By James Quinn
Published: 8:53PM GMT 03 Nov 2009

Warren Buffett has bought Burlington Northern Santa Fe, the rail operator, in a $44bn deal. Burlington is America's largest railway by revenue, operating freight across large swathes of the west and mid-west. Its tracks are also used by a variety of passenger services.

Mr Buffett believes that Burlington will benefit as the US economy recovers.

The septuagenarian billionaire argues that railway operators cannot do well unless the businesses and consumers who use the products they transport are beginning to spend again. "It's an all-in wager on the economic future of the United States," said Mr Buffett. "I love these bets."

In typical Buffett style, the cash-and-shares deal was struck in a 15-minute conversation with Matthew Rose, Burlington's chief executive.

It is the largest single investment Mr Buffett has made since taking control of Berkshire Hathaway, the investment conglomerate he has run since 1965.

It contrasts with his more recent deals, which have been big bets on the financial services sector including multi-billion dollar gambles on the recovery of shares in General Electric and Goldman Sachs, both of which have repaid him handsomely.

However, not all of his financial gambles have paid off, with 2008 going down as Berkshire's worst financial year since Mr Buffett took the helm, following a 62pc fall in profits and a drop in net worth of 9.6pc.

Berkshire is offering $26bn for the 77.4pc of Burlington it did not already own, 40pc in shares and the balance – $16bn – in cash, drawn equally from existing reserves and a bank syndicate. Berkshire will still have $20bn of cash.

Including Berkshire's previous investment and the assumption of $10bn of debt, the deal is worth $44bn.

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