Warren Buffett Watch

Published: Tuesday, 3 Nov 2009 | 3:15 PM ET

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Just minutes after this morning's announcement that Berkshire Hathaway is paying $26 billion to acquire the 77 percent of Burlington Northern Santa Fe

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[BNI  Loading...      ()   ] it doesn't already own, Warren Buffett spoke live by phone with Becky Quick and Joe Kernen on CNBC's Squawk Box.

This is the complete transcript of their conversation, that also touched on the economy, executive compensation on Wall Street, and whether capitalism has been "permanently damaged."

BECKY QUICK: First of all, how did this deal come (about)?  This comes as a huge surprise to anybody that's been watching this.  I know you've had a stake in Burlington Northern, but buying the whole thing that's a huge deal, 34 billion dollars?

WARREN BUFFETT:  Well, a week ago Thursday, we were, the Board of Directors of Berkshire was meeting in Fort Worth.  We do one off-site meeting a year.  We've got three subsidiaries in Fort Worth: Justin Boot, Acme Brick and TTI.  So we pick out a place and go down once a year.   And I went down a couple of hours early last Thursday, a week ago Thursday.  I went over to BNSF and visited with (Burlington Northern CEO) Matt Rose and his top management. They gave me a kind of a run-through of what they were going to do with the analysts that afternoon at 3:30.  And I said to Matt, 'If you're ever looking for a permanent home for BNSF, don't forget my phone number.   And he didn't throw me out of the office.  So the next day while we were touring various businesses of Berkshire, I had my assistant, Debbie Bosanek, call his office and ask if would drop by the Ashton Hotel around six o'clock when we get back. When he dropped by, I made him an offer.  He said he would take it to his Board. Took about 15 minutes.  (Laughs.)

JOE KERNEN: An offer that he couldn't refuse. You're using stock ...

BUFFETT:  I don't like to use stock, but on this one, because of the size and because they wanted a tax-free option for shareholders, we're doing it 40 percent stock and 60 percent cash.

BECKY:  What's this 50-for-1 split of the Class B shares?  We're just reading this release, too. You don't do stock splits!

BUFFETT:  Well, yeah, I'm not big on stock splits.  But by having this split, it enables anybody that has as little as one share of BNSF to opt for the tax-free exchange, the 40 percent per share. So those small shareholders can have exactly the same availability that otherwise would only have been available to a big shareholder.  Our main exchange will be for 'A' shares.  And since the 'A' sells for around $100,000, it means anybody that had less than that amount of BNSF would not have the same choice as a big shareholder did.   So, we're not splitting the 'A' but we are splitting the 'B' 50-for-1.

JOE:   And, if you had to just -- there's a lot of reasons to love the rails, I know, Warren.  But what is it about the future that makes the rails so attractive?  We've got to move stuff, I know.  Is it that they can do it in a very cost-effective way?

BUFFETT:  They do it in a very cost-effective way.  And they do it in an extraordinarily environmentally friendly way.   BNSF last year moved, on average, it moved a ton of goods 470 miles on one gallon of diesel.  It releases far fewer pollutants into the atmosphere. It saves enormously on energy consumption and, you know, it diminishes highway congestion.  Rails last year moved 40 percent -- more than 40 percent of the ton-miles in the country. They moved more than all those trucks, just the four big railroads.  So it's a very effective way of moving goods.   And I just basically believe this country, you know, will prosper and you'll have more people moving more goods 10 and 20 and 30 years from now and the rails should benefit. It's a bet on the country, basically.

BECKY:  You know, Warren, you started really getting involved with some of these train stocks, what was it, about two, three years ago when you started buying stakes in Burlington Northern.  Was it Union Pacific

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[UNP  Loading...      ()   ], the other?

BUFFETT:   Yeah, Union Pacific and Norfolk Southern

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[NSC  Loading...      ()   ], yeah.  About three years ago.  I woke up about five years late, but that's pretty good for me.  (Laughs.)

BECKY:  But what happens to your stakes in these other two?

JOE:  He's making a heck of a lot of money on Union Pacific today, I'll tell you that much, Warren.  Could you buy them in, too?

BUFFETT: No, no  -- (laughs) -- I think --

JOE:  Someday?

BUFFETT:  I think one railroad's enough.  (Laughs.)  But --

JOE:  So you're saying no, for sure?

BUFFETT:   Yeah.  No.  There's only two big roads in the west and, Union Pacific and BNSF will be competitors 50 years from now.  (Laughs.)

JOE:  Yeah.

BUFFETT:  But, it's true.  The situation in railroads changed dramatically a decade or so ago. Railroads got much more efficient.   I mean, right now you've got 90 percent more ton-miles moving than you had 25 or 30 years ago and you've got 'em moving on 40 percent less track.  And the costs have gone done in inflation-adjusted terms.  It's become a much more productive industry.   But I go way back in it.  I went to the Illinois terminal hearings before the ICC 50 years ago.   And I used to own something called the Green Bay and Western, and that was the GB&W, and they said it stood for 'grab baggage and walk.'  (Laughs.)

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