Finance History | BNSF Headquarters, Fort Worth, 12 February 2010 — US$26.5 Billion Put a Railroad Under Berkshire

On 12 February 2010, Berkshire Hathaway completed the purchase of the 77.5 percent of Burlington Northern Santa Fe that it did not already own.

The remaining shares cost US$26.5 billion in 2010 dollars, consisting of approximately US$15.9 billion of cash in 2010 dollars plus Berkshire stock. Berkshire funded about half of the cash component from existing balances and half from newly issued debt.

The transaction placed a railroad with approximately 32,000 route miles across 28 states and two Canadian provinces inside Berkshire. It also marked a deliberate move into an operation whose physical assets could never be treated as finished.

Track, bridges, locomotives, terminals and signaling require continual renewal. Underinvestment can improve near-term cash flow while quietly weakening capacity and safety, so depreciation is an incomplete guide to the money a healthy railroad may need.

Regulation and network economics make the bargain workable. A large rail system is difficult to reproduce, freight customers need reliable long-distance transport, and the owner can earn on added capital only while maintaining service and public legitimacy.

Berkshire grouped BNSF with MidAmerican as regulated, capital-intensive businesses. Their long-lived assets were partly financed with subsidiary debt that Berkshire did not guarantee, leaving each operation responsible for servicing its own obligations.

The first years showed the scale of reinvestment. Berkshire reported that BNSF planned about US$4 billion of capital spending in 2013 dollars for 2013, roughly twice its depreciation charge and more than any railroad had spent in a single year at that point.

The scale of that spending confirmed the acquisition thesis. Berkshire had accumulated more cash than asset-light subsidiaries alone could use, and a railroad offered a vast field for incremental capital with expectations of durable, regulated returns.

The headquarters at 2650 Lou Menk Drive remained in Fort Worth after the acquisition. Its low campus sits behind a network that converted Berkshire from an owner escaping looms into one willing to finance rails for decades.

Photo: David Wilson, CC BY 2.0, via Wikimedia Commons.