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[Suresh]

Bloomberg: Berkshire Buys Burlington in Buffett’s Biggest Deal

Warren Buffett’sBerkshire Hathaway Inc. agreed to buy railroad Burlington Northern Santa Fe Corp....

The purchase, the largest ever for Berkshire, will cost the company $26 billion, or $100 a share in cash and stock, for the 77.4 percent of the railroad it doesn’t already own. Including his previous investment and debt assumption, the deal is valued at $44 billion, Omaha, Nebraska-based Berkshire said today in a statement.
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Berkshire['s]... cash hoard ... was more than $24 billion at the end of June. Trains stand to become more competitive against trucks with fuel prices high, he has said.
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Burlington Northern, with pretax income of $3.37 billion on revenue of $18 billion last year, would be Berkshire’s second- largest operating unit by sales. The McLane unit, which delivers food to grocery stores and restaurants by truck, earned $276 million on revenue of $29.9 billion in 2008.

Berkshire’s largest business is insurance, with units including auto specialist Geico Corp. Buffett, who is the company’s chairman and chief executive officer, has said he likes insurance because he gets to invest the premiums paid by customers until the cash is needed to pay claims. The insurance businesses last year collectively earned $7.51 billion on revenue of $30.3 billion.

Buffett will use $16 billion in cash for the deal, half of which is being borrowed from banks and will be paid back in three annual installments, he told the CNBC. Berkshire will have more than $20 billion in consolidated cash after the purchase, he said.
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Buffett said in 2007 that railroads may prosper at the expense of trucks. “As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors, truckers, roughly by a factor of four,” Buffett told shareholders in 2007 at his company’s annual meeting. “There could be a lot more business there than there was in the past.”
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Suresh

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[Suresh]

Expansion of the Panama Canal was underway when Berkshire Hathaway acquired Burlington Northern. So, it seems likely that Warren Buffett considered the expansion's possible effect on continental rail traffic.

There may be something more to the Burlington Northern purchase than simply getting the business of Chinese exporters. Perhaps, Mr. Buffett is anticipating a revitalization of U.S. manufacturing in the face of a collapsing U.S. dollar. If that happens, then Burlington Northern would be positioned to provide the most fuel efficient cargo transportation for manufactured goods within the U.S.
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Bloomberg: Cheapest Route to Walmart From China May Skip Buffett’s Railway

Chinese toys and sneakers headed to Wal-Mart Stores Inc. and Target Corp. on the U.S. East Coast may bypass Warren Buffett’s $33.8 billion railway as the expansion of the Panama Canal slashes the cost of shipping them by sea.

The deeper, wider canal will allow A.P. Moeller-Maersk A/S, China Ocean Shipping Group Co. and other lines to ship more cargo directly to New York and Boston instead of unloading it on the West Coast for trains and trucks to finish the journey east. That could save exporters 30 percent, the canal operator said.

The $5.25 billion Panama Canal project, scheduled for completion during its centennial in 2014, may take business from ports including Los Angeles and Seattle, and railroads including Berkshire Hathaway Inc.’s Burlington Northern Santa Fe Corp. It costs as much as $1,000 more per cargo container to use trains than ships, said Lee Sokje, a shipbuilding analyst at Mirae Asset Securities Co. in Seoul.
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Rail traffic is expected to continue growing, although probably at a slower rate than in the past, Lundsberg said.

“We know he doesn’t make short-term investments,” Art Wong, spokesman for the port in Long Beach, California, said of Buffett. “He must be making it because he thinks it’s a great long-term investment.”

About 43 percent of Asian cargo shipped to East Coast ports -- including Savannah, Georgia, and Jacksonville, Florida --goes through the Panama Canal, said Rodolfo Sabonge, director of marketing for the Panama Canal Authority. That share may increase to 49 percent by 2025.
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_________________
Suresh

Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture.