(Reuters circulated the following story by James B. Kelleher on December 24, 2009.)
CHICAGO When Warren Buffett said last month that his Berkshire Hathaway Inc. was buying Burlington Northern Santa Fe Corp (BNI.N) for $26 billion, he characterized the deal as "an all-in wager on the economic future of the United States."
Now, the Oracle of Omaha has explained what he meant.
U.S. railroads are not like hula-hoops or pet rocks, businesses that "came and, you know, went," Buffett said in a transcript of a videotaped question-and-answer session earlier this month with Matthew Rose, BNSF's head
BNSF submitted the transcript on Thursday in a filing with the U.S. Securities and Exchange Commission.
"The rail business is not going to go anyplace," the billionaire investor told Rose, BNSF's chairman, president and chief executive officer.
"It's going to be right here in the United States. There's going to be four big railroads that are moving more and more goods. So it's... a good business."
Buffett says the deal, his biggest acquisition in the 44 years he has run Berkshire, is driven by his belief that railroads have transformed themselves into highly efficient businesses whose networks will fill up with freight as the economy recovers.
"It has to do well if the country does well," Buffett said, "and the country is going to do well."
He also makes it clear that the purchase is a bet on the prospects for the U.S. economy over the next half century -- not a bet on a near-term recovery.
"I don't know about next week or next month or even next year, but if you look at the next 50 years, this country is going to grow, it's going to have more people, it's going to have more goods moving, and rail is the logical way for many of those goods to travel," he said.
While acknowledging the regulatory challenges the industry faces because of the essential service it provides, and the "tension between shippers and railroads" that can lead to political efforts to affect rates, Buffett said the industry's economic importance means railroad owners are practically guaranteed a reasonable rate of return.
"It can't be something like Coca-Cola (KO.N) or Google (GOOG.O), because it's, you know, it's a public service-type business, too, and it has, it has a fair amount of regulation that is part of the picture," Buffett said.
"But it'll be a good business over time. It will make sense for this country to want railroads to continue to invest more and more money, in terms of expanding and becoming more efficient. So you're on the side of society, and society will largely be on your side. Not every day, but most of the time."
He assured Rose that BNSF will not be micromanaged.
"We've got 20 people in Omaha... and there isn't one of them that knows how to run a railroad," he said.
Asked if Berkshire plans to sell of any BNSF assets to pay debt used for the acquisition, Buffett replied: "Not a dime."
In the interview, Buffett provided a glimpse of the high-class problems that Berkshire, an increasingly diversified conglomerate, creates for itself by not paying dividends.
He said Berkshire, whose 80 units sell everything from Geico car insurance to Fruit of the Loom underwear, generates anywhere from $8 billion to $10 billion a year in cash as a result of its no-payout policy.
