By MITCHELL SCHNURMAN
mschnurman@star-telegram.com
It’s easy to understand why Warren Buffett wants Burlington Northern Santa Fe. It has a great brand name, a business that’s easy to understand, a record of profits in any economy, and a top-notch management team.
But why does the railroad want Buffett?
It’s almost sacrilegious to ask. As a businessman and investor, Buffett is so widely admired that U.S. presidents and the Bank of England call him for advice. With his credibility and common sense, he’s often the ethical compass for American business.
Companies regularly reach out to him, hoping that his publicly traded investment firm, Berkshire Hathaway, will snap them up. Under Buffett, they escape the never-ending demands of Wall Street. They get better access to capital, as well as Buffett’s sage advice — without the meddling that comes from most owners.
Sounds attractive, except that BNSF has done just fine on its own. It makes investments with 20-, 30-, even 40-year horizons, and has no problem raising money. It’s become a model of efficiency, doubling revenue and income this decade without raising its employee count.
And on the measure that matters most to shareholders, total return, BNSF has been leaving Berkshire in the dust.
In the past five years — even before Buffett offered a 31 percent premium that sent the railroad’s stock price soaring — BNSF’s return was five times greater than Berkshire’s. Take a longer view, 10 years, and the railroad’s total return topped 179 percent, compared with 55 percent for Berkshire.
That’s in the rearview mirror, though, and in the here and now, money talks.
Buffett’s bid price — $100 a share for a stock that was trading at $76 — creates what CEO Matt Rose calls a compelling value for shareholders, who must approve the sale. For the board, what sealed the deal is Buffett’s long-range vision and his pledge to let BNSF operate as it always has.
"We think we have an excellent home for the company," Rose said in an interview last week. "The cultural fit just makes a lot of sense."
The move has no strategic rationale. It doesn’t extend the railroad’s reach, diversify its revenue sources or create exceptional growth opportunities. But Rose said there was "no downside whatsoever" for employees, customers and the communities where BNSF operates.
Still, some uncertainty exists with any new owner, and most mergers and acquisitions have clear winners and losers. Burlington Northern had to lay off workers and close a headquarters after merging with the Santa Fe railroad. And the buyout of the former TXU Corp. has saddled the successor company with more debt than it can handle.
Those threats aren’t lurking here, but the deal introduces a different risk factor for the railroad: succession. Rose has been CEO since 2000 and added the chairman’s role in 2002, but he’s only 50, so the company doesn’t have immediate concerns about its leadership.
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