Warren Buffett's Berkshire Hathaway Moves to Boost Burlington Stake Yet Again


It's becoming increasingly apparent that Warren Buffett is in the process of putting a big bet on the Burlington Northern freight railroad.

In an SEC filing late tonight, Warren Buffett's Berkshire Hathaway indicates it plans to pick up another 7.45 million shares of Burlington Northern. Added to the 53 million shares it's already disclosed buying, that would give Berkshire a total of roughly 60.5 million shares, about 17% of the railroad's outstanding stock.

Specifically, the filing says that last Thursday and Friday, Berkshire bought call options that give it the right to buy a total of almost 7.5 million Burlington shares at $40 each on October 3. It paid $37.955 each for the right to buy almost five million shares and $39.951 each to buy another 2.5 million shares.

That appears to be a hedge allowing Berkshire to buy the shares in a month at a per share price in roughly the same range, the high 70s, it's been paying in recent weeks (Burlington closed at almost $83 today).

Specifically, Berkshire bought options allowing it to buy:

  • 4,955,440 shares for a total of $77.96 per share ($40.00 exercise price plus about $37.96 for the option) = $386 million of stock
  • 2,500,000 shares for a total of $79.95 per share ($40.00 exercise price plus about $39.95 for the option) = $200 million of stock

Why wait a month? This part of the story is a bit murky to me, but it appears Mr. Buffett is waiting for anti-trust clearance from the government. In a filing late last week, Burlington Northern revealed it had been told by Mr. Buffett's holding company that Berkshire has a "present good faith intention to acquire in excess of $597.9 million of the outstanding voting securities" of Burlington Northern, in addition to its current stake. Berkshire also told Burlington that "depending on market conditions (it) may acquire more of the voting securities of BNI" putting its stake above the 25% "threshold." The filing says the notification was done to comply with Federal anti-trust laws.

Reuters quotes an anti-trust lawyer as saying after an acquiring company reveals its intentions, "The government then decides whether you are pursuing a transaction of interest, and if you don't hear from the government within 30 days, you can go up to the next threshold."

To get to that 25% level (about 88 million shares) of Burlington's outstanding stock, however, Berkshire would need another 35 million shares in addition to its present 53 million share stake. The 7.5 million shares it has optioned to buy would only bring its total stake to around 17%.

We know Berkshire Hathaway also has stakes in two other railroads, Union Pacific and Norfolk Southern, but we don't know how big those holdings are. With the SEC's permission, Berkshire omitted that data from its August portfolio filing for the second quarter. In May, Berkshire revealed it had bought 10.5 million shares (4%) of Union Pacific and almost 6.4 million shares (less than 2%) of Norfolk Southern. Buffett is required to report his Burlington Northern moves because he has more than a 10% stake.

Questions? Comments? Email me at buffettwatch@cnbc.com