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Berkshire Hathaway buys Burlington Northern Santa Fe (a U.S. railroad) for $44B
- davi 17y agoBuffett said ... that railroad operators cannot do well unless American businesses are producing goods and customers are buying them. "It’s an all-in wager on the economic future of the United States," he said in a written statement. "I love these bets." I wonder if it's also a long-term bet about the future cost effectiveness of rail vs. long-haul trucking for shipping goods to U.S. consumers.
- catzaa 17y agoLong distance trucking is sure to loose. If the economy recovers, the oil price is sure to "recover".
- hyperbovine 17y agoThank god trains don't run on oil.
- yardie 17y agoOne train can pull 20-30 cars. How many trailers can your Peterbilt pull?
- mahmud 17y agoHere is a good article on the fuel efficiency of trains: http://www.factcheck.org/askfactcheck/can_a_freight_train_really_move_a.html http://www.factcheck.org/askfactcheck/can_a_freight_train_re...
- tocomment 17y agoBut don't trains run on electricity in a lot of places? So doesn't that make a comparison to diesel truck efficiency bogus? It's like that 400 mpg plug in hybrid we heard about a while back.
- jrockway 17y agoThere are a few commuter lines in the US that are electrified, but I don't think there is any electrified freight service. The diesel that diesel engines burn is converted to electricity to power the traction motors, however.
- catzaa 17y ago> , but I don't think there is any electrified freight service. Are you sure. I live in a third world country and most freight tracks are electrified.
- coryrc 17y agoThe United States does not have electrified freight service. Yes, our trains are worse than many third world countries.
- jrockway 17y agoNot sure how diesel trains are "worse". When you have a 1000-mile line through the middle of nowhere, it's probably better to bring the power-plant with the train, instead of having 1000 miles of wire and electrical substations sitting idle most of the time. (Overhead wires also interfere with tall railcars, like double-stack container trains.) For commuter trains, though, I am not sure why we use diesel. Lower upfront cost is my guess, which is kind of a shame. (The US has big problems with buying proper infrastructure. Much better to spend $100 million over 10 years and provide mediocre service than to spend $50 million in one year and provide excellent service for 10 years. Funding anything other than roads is politically unpopular; trains are "noisy" and we don't want more of them. Yeah... some day I will move to Europe or Japan...)
- pyre 17y agoDepends on what you mean by 'worse.' Electricity isn't automatically good. An electric train could be vastly more inefficient than a diesel train, and the way that the electricity is generated is also called into play.
- modoc 17y agoAs far as TONS moved a MILE per GALLON trains beat trucks by a pretty large factor.
- thingie 17y agoWell, they do. Railways in almost every country relies on diesel engines. Even if most of their lines are electrified, there are diesel shunters and engines for branch lines and factory sidings. And these are vital for freight transport. (Even in Switzerland with almost 100% electrification of railways.)
- ableal 17y agoWell, there are submarines running on nukes instead of diesel, but doing that on land might raise a few eyebrows ... The real point is that cost of fuel is a lower percentage of total costs for railroads (a casual search hit on a 1997 guidebook said 7.1% vs. 13.5% for trucking).
- catzaa 17y agoA lot of trains are electrified (I do not know what that situation is in the US). Also, even diesel-electric trains are much more efficient than trucks.
- wglb 17y agoWell, it likely is, but keep in mind that rail has a limited number of destinations unlike trucks, so you really need both.
- Perceval 17y agoI think his decision may be related to his favorite economic indicator: freight transportation. In an interview with ABC, Buffet said that the Freight Transportation Service Index was one of his top indicators of how the economy was doing: http://cosmos.bcst.yahoo.com/up/player/popup/?rn=3906861&cl=14408432&ch=4226716&src=news http://cosmos.bcst.yahoo.com/up/player/popup/?rn=3906861&... Here is the TSI-Freight and -Passenger: http://www.bts.gov/xml/tsi/src/index.xml http://www.bts.gov/xml/tsi/src/index.xml Watching the flow of raw materials and manufactures around the country is probably a better indicator of economic health than looking at the speculators pump up the Dow.
- Anon84 17y agoMaybe this will the beginning of a new era of investment in long distance freight. (A renewed interest in public transport would be great as well)
- thingie 17y agoBNSF is a freight railroad network, unsuitable for mass public rail transit. Buffet is getting into the freight service business, not passenger traffic.
- Anon84 17y agoI know. I'm hoping the interest will spill over to passenger traffic, like we are starting to see now with the European high speed train network.
- thingie 17y agoIs there any surprising recent development concerning European HSRs? There are new lines opening in Spain, France, Germany, lots of ideas in many other countries (UK), but it isn't much faster or bigger than last few decades. There are still more new highways, and even though railroad passengers numbers (HSR) are rising, still only quite slowly.
- adw 17y agoNew lines in the UK, too: High Speed 1 (the Channel Tunnel Rail Link) has been up and running for a bit, and the discussions about a high-speed replacement for the Midland Main Line are going.
- anamax 17y agoHuh? Freight rail and passenger rail are basically at odds with one another. For efficient transportation, we want freight rail.
- jordanb 17y agoBNSF rails are used for mass transit in Chicago. They're also used for Amtrak routes. BNSF has historically been the freight railroad most friendly to passenger rail. Unlike Union Pacific and CSX, they aren't antagonistic to Amtrak, and make an effort to give the passenger trains proper right-of-way. An interesting note about the Metra service in Chicago is that it is operated by the BNSF under contract with the State. So the Metra conductors on the BNSF line are actually BNSF employees. It is one of the busiest and most productive lines Metra operates. It's also one of the most professional.
- mrduncan 17y agoA pet peeve of mine but Buffett didn't purchase the railroad - his company Berkshire Hathaway did.
- tseabrooks 17y agoI think you are being a bit pedantic here. While he may not have made the purchase with his own finances he is the one making the decision and coming up with the strategy... and THAT is what people are interested in. People will be interested in this because of this implies about Buffet's thoughts on the future economic situation in America. Whose money he uses is of little interest or importance.
- mrduncan 17y agoMaybe so. I agree with what you're saying, but even Buffet doesn't work alone, from what I understand Charlie Munger is pretty influential in most of the decisions as well.
- eru 17y agoThat's a point. Please keep in mind that Buffet has a large share of his wealth tied up in Berkshire shares, so he's risking his own money.
- jakarta 17y agoHe was the decision maker here. It is not like a Berkshire subsidiary (i.e.: David Sokol at MidAmerican) did the deal
- spoiledtechie 17y agoIs it him or his company who controls though? Im going to say him...
- jagjit 17y agoVery interesting to note how a top value investor differs from VCs. When Buffet goes all-in for future of American economy, he goes for a company/industry which has been around for a century or more with stable cash flows. In effect though, future of American economy wont matter much to him unless the economy goes into a severe long depression - which he is betting against. When VCs go all-in for future of something - they go for companies/industries with no history of profits. That is why they have to use crutches of hype and ipos using the hype. I think the hype machinery is working right now to create value - out of thin air - in clean/green energy tech. I am not questioning the utility of VC - just questioning its characterization as investment. I think it is just speculation. Calculated at best, done by the smartest people. But still speculation. Just like most of Wall Street.
- jakarta 17y agomy guess is it comes down to two things: 1. The capital expenditures of railroad companies are changing. Most of them have pretty much laid track everywhere needed. If expansion isn't necessary, CapEx will go to maintenance for the most part, this means a ton in "owners earnings" to go up to BRK-Parent 2. Railroads > Trucking when oil shoots up. Could be his view that this is likely. For bonus, I know there is a lot of talk about BNI having a competitive advantage at getting access to shipping Chinese goods because of their west-coast track network, apparently they are better developed than others for this.
- jyothi 17y agoMy first thought was exactly the same - it would be for oil. It would also serve as a great investment for biofuel transportation.
- DrJokepu 17y agoCould you explain the "Railroads > Trucking when oil shoots up" in more detail? I would assume that the fuel costs of diesel locomotives are just as tied to oil prices than fuel costs of trucks. The operating costs of electric locomotives would get equally more expensive as well as electricity prices are not independent of oil prices (and electricity is always more expensive than oil).
- tedunangst 17y agoAssume trains are more fuel efficient, but less convenient because of fixed routes and the cost of loading and unloading the cargo onto trucks at the endpoints. As fuel savings increase, trains become more attractive.
- jakarta 17y agothe costs b/w trucks and freights differ after a certain price point and it becomes cheaper to have goods travel by freight than by truck. So, if you go back and look at when oil was at its high, railroads were performing better than trucks
- thingie 17y ago
- emsysman 17y agoThe way cars have monopolised USA and lack of poor public transport infrastructure might provide a huge opportunity for rail road companies. I really hope to see cheap public transport system in USA. Also given lot of public awareness about global warming and reducing oil consumption may be added incentive.
- forensic 17y agorail roads are obsolete as public transport. stuff like this is much superior: http://www.skytran.net/phpsite/home/Home%20Intro.php?bg=neg http://www.skytran.net/phpsite/home/Home%20Intro.php?bg=neg
- eru 17y agoI would rather bet on rails than MagLev anytime soon.
- potatolicious 17y agoYeahhhhh, no. We've been talking about personal pod-based mass transit for decades and it has yet to materialize, even without the sci-fi billion-dollar mag-lev thing. Rail will be the de facto standard for mass transit for years to come. Why? Because it goes really, really fast, we have had literally hundreds of years of experience running trains of all sorts, and experience, know-how, and resources are available cheaply. Honestly, I don't even think mag-lev will take over as the primary form of rail transport. It's still too expensive, and the gains not sufficient to justify the additional cost. We have high speed trains running impossibly fast on existing rail infrastructure - unless you can double that speed and break the sound barrier or something, there's no incentive to spend ludicrous cash on that sort of system. Even Shanghai, a city that seemingly has unlimited funds for infrastructure, has shied away from mag-lev after building the airport line.
- httj 17y agobgjgjgyj nnjmhmhmn
- jwr 17y agoOk, cool, but how is this relevant to us, hackers? How is this Hacker News?
- philk 17y agoJust because we're hackers doesn't mean we have to be cut off from everything else. Personally I find the movements of someone who's been so successful in business for so long interesting.
- asmosoinio 17y ago"Please don't submit comments complaining that a submission is inappropriate for the site. If you think something is spam or offtopic, flag it by going to its page and clicking on the "flag" link. (Not all users will see this; there is a karma threshold.) If you flag something, please don't also comment that you did." http://ycombinator.com/newsguidelines.html http://ycombinator.com/newsguidelines.html
- ableal 17y agoWhat are the consequences of shifting a large number of megadollars and megatons to a different land freight system ? There may be some of interest to you. If not, well, someone else will probably figure out what they can do ...
- akd 17y ago> megadollars actually, gigadollars...
- edw519 17y agoMr. Buffett said that the deal came together quickly...Mr. Rose took the proposal to his board - and got an answer in about 15 minutes. Hell, it takes us longer to pick a font.
- jonmc12 17y agoBuffett himself keeps no firm schedule - he keeps his time available specifically so that he jump on deals. His organization is organized for jumping on opportunities once he decides they are a good deal.
- zargon 17y agoThat statenent is about the Burlington Northern board making a decision in 15 minutes, not Buffett...
- steveplace 17y agoBuffett already owned a sizeable chunk of BNI, he was just finishing the deal, apparently.
- hop 17y agoThis is how much time Buffett spends choosing fonts - http://news.ycombinator.com/item?id=914065 http://news.ycombinator.com/item?id=914065
- deleted 17y ago[deleted]
- johnohara 17y agoIt's gonna be tough getting by his hotels on Park Place.
- DanielBMarkham 17y agoI really, really hate the fact that I upvoted you. Seriously. I was going to make the same joke, but I was also going to follow it up with something more pertinent, like the fact that rails have the best cost-per-ton-mile or that railroads are both a monopoly and in limited supply (you can't just make more of them) So -- love the joke. But everybody can't just shoot out one-liners like that, myself included. Next time add something of value to the reader besides a joke. We don't want this place turning into reddit.
- davi 17y agoI really, really hate the fact that you upvoted him too.
- DanielBMarkham 17y agoI tried to make up for it by giving him a stern lecture. Think it helped? Looking at the topic currently, out of 10 root replies, 2 are jokes, 1 is a basically a one-liner, 1 is trash, 5 are on-topic, and 1 is a complaint that this isn't HN. (sigh)
- davi 17y agoLooking at the topic currently, out of 10 root replies, 2 are jokes, 1 is a basically a one-liner, 1 is trash, 5 are on-topic, and 1 is a complaint that this isn't HN. (sigh) Yep, it's kind of a bummer. Be interesting to see how it unfolds over the next hour or so (and we are polluting this unfolding with our meta-discussion) -- maybe it will even out. (Aha! http://news.ycombinator.com/item?id=919318 http://news.ycombinator.com/item?id=919318)
- johnohara 17y agoRead my other post Dan. I had an office two blocks away from the BNSF line in Chicago when they were laying the fiber from downtown to the central office in Hinsdale. I went out and talked to the guys boring underground (TX fiber-slingers wearing metal-tipped boots and hats -- I'm sure people here have met them). Berkshire made a good purchase.
- yread 17y agoAs part of the deal, Berkshire will split its class B shares 50-to-1 to help pay for the acquisition. Wow Buffett splitting stock?!
- cpr 17y agoThat's actually pretty amazing; maybe now they'll be affordable by ordinary folk. (Some of their shares were $60K at some point.)
- davi 17y agohttp://www.berkshirehathaway.com/compab.html http://www.berkshirehathaway.com/compab.html http://www.google.com/finance?tkr=1&q=NYSE:BRK.A http://www.google.com/finance?tkr=1&q=NYSE:BRK.A
- andreyf 17y agoFor those lazy to click through, Class-A shares are just a tad over $100k now.
- hop 17y agoNo, you can buy B shares at 30-1 value of A shares for about $3000.
- irrelative 17y agoIt is a big deal, but they aren't splitting their class A shares. Class B was introduced to make shares more affordable to people who wanted to invest, but wanted a lower entry point. I think splitting the B stock is keeping with that sentiment.
- javery 17y agoI believe Class B wasn't introduced for that reason, if I remember correctly it had something to do with people with Class A needing to divide stock to leave it in their will or as gifts.
- 17y ago
- johnohara 17y agoBNSF has the best end-to-end rail network in the country. They spent big $$ improving infrastructure when others like the CSX were dawdling with their logistical systems (does anyone remember the backlogs and delays in TX and AL during the early 2000's that required federal intervention?) The hidden gem in this deal is the investment BNSF made in laying 24cnt fiber next to their track in continuous 4" pvc. I've always felt the decision to do that was a reflection on just how well-run the BN was as a company. Large-scale packets on the rails, small-scale packets in the pipe. Berkshire Hathaway doesn't just invest in well-run companies. It invests heavily in the management of well-run companies.
- protomyth 17y agoWasn't the fibre next to track the way Qwest (original) was started?
- evgen 17y agoThat was Sprint (as in Southern Pacific Railway.)
- tcskeptic 17y agoThis discussion prompeted a memory of this article from 1998 in Wired: http://www.wired.com/wired/archive/6.05/qwest.html http://www.wired.com/wired/archive/6.05/qwest.html Regarding the origin of the Qwest network: "Philip Anschutz, who owns more than 86 percent of Qwest - 55 percent of a combined Qwest-LCI - previously owned the Southern Pacific Railroad. When he sold the railroad to Union Pacific in 1996, he negotiated to buy the rights of way alongside the tracks of both railroads. Combined, they represent the cable route of a significant portion of the network. The rest of the cable is run along lines for which Qwest leases the right of way for up to 50 years, or along interstate highways, where it leases rights of way from transportation authorities for 20 or 25 years. Eighty-five percent of the Qwest network is strung along railroads."
- msisk6 17y agoThe story I heard years ago is that SPRINT originally was an acronym for Southern Pacific Railroad Internal NeTwork.
- jakarta 17y agoThe really interesting thing here is that Buffett is set to use Berkshire shares for the acquisition. I can’t remember the last time that he did this, I know he really regretted it with Dexter Shoe Co.: In 1993, Berkshire paid $433 million for the Maine-based company. Rather than use cash, Buffett used Berkshire Class A stock to fund the purchase. That Berkshire stock is worth eight times more now, giving the Omaha, Nebraska-based insurance and investment company a $216 billion market value. Dexter didn’t make it that long. It ended shoe production in the United States and Puerto Rico in 2001, and Berkshire folded what was left into its H.H. Brown Shoe Group unit. “What I had assessed as durable competitive advantage vanished within a few years,” Buffett wrote on Friday. “By using Berkshire stock, I compounded this error hugely. That move made the cost to Berkshire shareholders not $400 million, but rather $3.5 billion. In essence, I gave away 1.6 percent of a wonderful business — one now valued at $220 billion — to buy a worthless business.” “To date, Dexter is the worst deal that I’ve made,” Buffett went on. “But I’ll make more mistakes in the future – you can bet on that. A line from Bobby Bare’s country song explains what too often happens with acquisitions: ‘I’ve never gone to bed with an ugly woman, but I’ve sure woke up with a few.’”
- byrneseyeview 17y agoHe's said that he'll do it if he gets equivalent value for the money. I believe he bought either Netjets or Flight Safety for stock, too.
- jakarta 17y agoyou're right, it was NetJets in 1998 http://www.berkshirehathaway.com/news/jul2398.html http://www.berkshirehathaway.com/news/jul2398.html
- byrneseyeview 17y agoAlso General Re in the same year.
- ggrot 17y agoI don't see why it matters whether or not he uses cash or stock. If he had bought dexter using cash, the investors could have turned around and used that cash to purchase berkshire stock - making the deal equivalent to buying with stock. The fact that the stock went up over time would have been true in either case. I think that the comment about it being a mistake to have used stock instead of cash, and that it was compounded, was simply to make for a better story.
- protez 17y agoIt seems to be a flight from cash, in the prospect of Obama's bailouts and Fed's endless dollar printing. A railroad business makes perfect sense when the incoming inflation will give the definite advantage to the low-cost transportation over any other alternatives.
- iron_ball 17y agoParticularly makes sense given Buffett's own public worries about a poisoned dollar.
- markberg 17y agoIs there a measure of the private gain from public support for rail vs truck? BNSF maintains its rails with less taxpayer support than the truck companies get for highways, right?
- MikeCapone 17y agoThe story says 34 billion, not 44.
- Retric 17y agothe 77.4 percent of Burlington Northern Santa Fe it did not already own for $34 billion in cash and stock, in the largest deal in Berkshire history. But wait, they also assumed 10 billion in debt. So they just "spent" 34 billion buying sock + 10 billion debts to get the company. PS: I don't know when BH got their initial stake, but they could have paid something like (34 / .774) = ~43.9 billion to get the company. Assuming the company was profitable and paying down the debt you can somewhat ignore it.
- MikeCapone 17y agoThat's correct. thank you.
- timdorr 17y agoPlus $10B in debt.
- steveplace 17y agoBlack and Decker got bought out today too. Those are huge deals.
- MikeCapone 17y agoThere's certainly a green angle to this story: http://www.treehugger.com/files/2009/11/warren-buffet-buys-bnsf-railway-trains-berkshire.php http://www.treehugger.com/files/2009/11/warren-buffet-buys-b...
- hooande 17y ago"I like cash," Mr. Buffett said.
- bh23ha 17y agoInteresting investment, if the US economy is indeed undergoing a restructuring with the dollar declining and exports replacing imports, then this should create a lot of business for the rail-roads. However, while the transformation away from import driven consumerism, to manufacturing led exports may sound like things are great, they are in fact getting slightly worse. Because it is driven by a reduction in American global purchasing power, this makes imports, oil among them, more expensive and domestic products more price competitive.
- jussij 17y agoWhy didn't he just by Twitter for $1B and save himself $43B? http://www.reuters.com/article/smallBusinessNews/idUSN1616362920090917 http://www.reuters.com/article/smallBusinessNews/idUSN161636... Does he know something we don't?