Warren Buffet loves the U.S.

NEW YORK (Reuters) - Warren Buffett’s Berkshire Hathaway Inc will pay $26 billion to buy out Burlington Northern Santa Fe Corp in a bet that the nation’s largest rail company is poised to benefit from a recovering U.S. economy.

The deal announced Tuesday, Buffett’s biggest-ever acquisition, also represents a bet on coal and new interest in a storied but highly cyclical American industry that has tried to reinvent itself by emphasizing its ability to move goods cheaply and efficiently.

The deal was priced at a premium of 31.5 percent over BNSF’s closing stock price on Monday and values the railroad at $34 billion, or 18 times estimated 2010 earnings. BNSF shares jumped 28 percent in afternoon trading; other U.S. and Canadian rail shares also rose.

“It’s an all-in wager on the economic future of the United States,” Buffett, who has been building up his rail holdings for several years, said in a statement. “I love these bets.”

Reversing his long-time opposition to share splits, which has resulted in Berkshire having the highest per-share prices of any shares on the New York Stock Exchange, Buffett agreed to a 50-for-1 split of Class B stock, which will make it much more accessible to retail investors.

The Class B shares trade at over $3,000, and the Class A shares at more than $100,000. The B shares were up about 2 percent and the A shares about 1.5 percent.

Buffett, one of the world’s richest men and one of its most revered investors, is known for making big long-term bets. In October 2008, soon after the collapse of Lehman Brothers set off worldwide selling, he wrote in The New York Times: “Fears regarding the long-term prosperity of the nation’s many sound companies make no sense.”

Berkshire would pay $100 per share in cash and stock for the 77.4 percent of BNSF shares it does not already own, and would also assume $10 billion of BNSF debt. It would pay about $16 billion in cash, of which $8 billion would be from its own funds and the rest from debt.

Berkshire could not do an all-stock deal because it would deplete its capital beyond what insurance regulators would allow, said Justin Fuller, an analyst at Midway Capital Research & Management in Chicago and author of the Buffettologist.com blog.

Berkshire’s biggest holdings include insurers like Geico, although it has close to 80 units with products ranging from carpeting to natural gas, ice cream, paint and underwear.

“They tend to accumulate capital faster than they know what to do with it, and this is a really good deal for them,” Fuller said. “It will create a lot of value for Berkshire.”

RECOVERING ECONOMY

The deal, expected to close in the first quarter of 2010, comes as the U.S. economy is beginning to recover from its worst downturn since World War Two. U.S. gross domestic product grew at a 3.5 percent annual rate in the third quarter, the first quarterly growth in more than a year.

BNSF, the No. 1 U.S. railroad by revenue, operates in the U.S. West and Midwest. It said in September that freight volumes were recovering and it was encouraged by an improvement in consumer-related markets.

“Berkshire is seeing way past some impending economic recovery signs now and looking into the future,” said Peter Boockvar, equity strategist at Miller Tabak + Co in New York.  Continued…

NEW YORK (Reuters) - Warren Buffett’s Berkshire Hathaway Inc versera 26 milliards de dollars pour racheter la Burlington Northern Santa Fe Corp dans un pari que les plus grands de la nation entreprise ferroviaire est en passe de bénéficier d’une économie américaine en convalescence. L’accord annoncé mardi, le plus grand Buffett-acquisition jamais réalisée, représente aussi un pari sur le charbon et un nouvel intérêt dans une industrie américaine étagé mais très cycliques qui a tenté de se réinventer en insistant sur sa capacité à transporter des marchandises bon marché et efficace. L’opération a été au prix d’une prime de 31,5 pour cent sur le cours des actions de BNSF de clôture, le lundi et valeurs de la voie ferrée à 34 milliards de dollars, soit 18 fois le bénéfice estimé 2010. BNSF part bondi de 28 pour cent dans le commerce après-midi, d’autres actions américaines et canadiennes ferroviaire a également augmenté. «C’est un tout-en pari sur l’avenir économique des États-Unis”, Buffett, qui a été la constitution de sa Rail Holdings depuis plusieurs années, a déclaré dans un communiqué. «J’adore ces paris.” Inverser son opposition de longue date aux fractionnements d’actions, ce qui a entraîné dans le Berkshire ayant le plus haut prix à proportion de toutes les actions à la Bourse de New York, Buffett a convenu d’un 50-pour-1 scission des actions de classe B, qui fera beaucoup plus accessible aux petits investisseurs. Les actions de catégorie B du commerce à plus de 3000 $, et les actions de catégorie A à plus de 100.000 $. Les actions B ont augmenté d’environ 2 pour cent et les actions A environ 1,5 pour cent. Buffett, l’un des hommes les plus riches du monde et l’un des investisseurs les plus vénérés, est connu pour faire des paris à long terme de gros. En Octobre 2008, peu après l’effondrement de Lehman Brothers partit vendu au monde, il a écrit dans The New York Times: “Les craintes concernant la prospérité à long terme des entreprises de son De nombreux de la nation n’a pas de sens.” Berkshire devrait payer 100 $ par action en numéraire et en actions pour les 77,4 pour cent des actions de BNSF elle ne détient pas encore, et devrait également assumer 10 milliards de dollars de la dette BNSF. Il paierait environ 16 milliards de dollars en espèces, dont 8 milliards de dollars seraient à même ses fonds propres et le reste de la dette. Berkshire pourrait pas faire un deal-stock car elle épuiserait son capital au-delà de ce que la réglementation d’assurance permettrait, a déclaré Justin Fuller, analyste chez Midway Capital Research & Management à Chicago et auteur du blog Buffettologist.com. Plus grande participation de Berkshire compte les assureurs comme Geico, bien qu’il possède près de 80 unités avec des produits allant de la moquette au gaz naturel, de la crème glacée, de peinture et de sous-vêtements. «Ils ont tendance à accumuler le capital plus rapidement qu’elles ne savent quoi faire avec elle, et c’est vraiment une bonne affaire pour eux”, dit Fuller. «Cela va créer beaucoup de valeur pour Berkshire.” RECUPERATION DE L’ÉCONOMIE L’opération, qui devrait être conclue au premier trimestre de 2010, intervient alors que l’économie américaine commence à se remettre de sa pire récession depuis la Seconde Guerre mondiale. Produit intérieur brut américain a progressé à un taux annuel de 3,5 pour cent au troisième trimestre, la croissance trimestrielle en plus d’un an. BNSF, le n ° 1 du chemin de fer des Etats-Unis par des recettes, est présent dans l’Ouest américain et le Midwest. Il a indiqué dans Septembre que les volumes de fret ont été les récupérer et il a été encouragé par une amélioration des marchés liés à la consommation. “Berkshire voit ainsi passé, certains signes de reprise économique imminente maintenant et regarder vers l’avenir”, a déclaré Peter Boockvar, stratège actions chez Miller Tabak + Co à New York. Continued …

During this latest round of economic woes, our financial markets may have incurred permanent damage. Even after a complete recovery, who will be able to look at them quite the same again? Indeed, I believe most investors have become a little more cynical and suspicious as result of the current recession and related setbacks that we have been experiencing for the last six months.

After what has happened to Ford, GM, CitiGroup, Bank of America, Nortel Networks, Circuit City, and others, who can blame anyone for refusing to believe ever again that there is such a thing as true blue-chip stock. All of these companies were high-fliers, but have now seen their stocks either become worthless (as a result of bankruptcies) or drop to just small fractions of their former values. No stock, no matter how solid it has been for decades, will likely be seen in the future as a bulwark against troubled times.

Then we’ve seen all of those formerly high-performing mutual funds (some having never previously recorded a down year) retreat wildly into negative territory, losing up to 40% or more of their value in 2008 alone. Funds like these comprised the lion’s share of many people’s 401(k)’s, IRAs, and other retirement accounts.

People will no doubt begin to wonder about the safety of any mutual fund that is primarily equity-based, even for the long term. The thinking will be like this: What good is a fund that produces 10% gains for five straight years if it is going to lose 40% in the sixth year?

In addition, financial gurus, fund managers, professional investors, and stock brokers will have difficulty regaining any kind of widespread trust. Obviously, the Bernie Madoff scandal didn’t help, but that’s not their only problem. Our current market conditions have called the honor of even the most honest of them into question, and made the most intelligent of them look foolish. The next time one of them makes a prediction or some kind of recommendation, who’s going to take it seriously? I would dare say very few.

The bottom line is that our financial markets will likely never be the same after the first recession of the 21st century. But there is a bright side. Despite the damage that may be been sustained, the markets might actually become more stable in the long run. People will just have to take a more realistic approach to investing, and that will include putting a lot more into savings.