The acquisition of BNSF Railway by investment firm Berkshire Hathaway may determine how major freight companies talk to their marketplace for years to come, according to the Journal of Commerce.
Alone among the major North American railroads, BNSF's operations no longer will be subject to direct quarterly reporting to the Securities and Exchange Commission and subject to questioning by investors and investment analysts.
So other shippers and other transportation carriers will be watching to see if BNSF's executives find other ways to keep financial and freight markets up to date on its activities, or whether BNSF seeks to gain some market advantage by closing the curtains on its operations in a market that's long been transparent.
The $26 billion buyout by Warren Buffett's Berkshire of the 77 percent of BNSF it did not already own came to a climax in recent days, with BNSF counting votes on the deal at a special shareholders meeting on Feb. 11.
Berkshire already had said if BNSF shareholders gave their OK, the two companies planned to close their merger on Feb. 12.
The prospect of having all but one of the major North American railroads subject to quarterly financial reporting as publicly traded companies has the freight industry wondering if Buffett's acquisition will come at a cost to the broader industry. Because of the railroads' long reach into multiple parts of the economy, many consider the data they provide an important indicator of activity in the economy -- something even Buffett pointed to a few months before his big buy.
"I am concerned" about a lack of visibility into BNSF, said Anthony Hatch of ABH Consulting, "and hope they will be doing the right thing" by finding ways to keep disclosing substantial information.
BNSF officials have said they will maintain weekly traffic reporting through the Association of American Railroads, and maintain regulatory reports required by the Surface Transportation Board.
At the STB, those include monthly reports on rail employment, quarterly details on fuel surcharges and a bare-bones financial statement, various annual reports and a loosely structured end-of-summer letter from Class 1 rail CEOs on peak-season conditions.
Shippers also say folding BNSF into Berkshire can affect other STB procedures.
The regulator uses stock prices for major carriers to determine the level of capital returns that lure equity investors, but with BNSF now spared that pressure, the STB will have to reconfigure part of its formula.
More pressing to some shipper advocates is a risk that the premium Berkshire is paying could become part of BNSF's valuation base for STB-approved freight rates.
Sen. Byron Dorgan, D-N.D., proposed amending a rail regulatory bill to bar that premium from being counted. He and others withdrew their amendments to help the bill pass a committee vote in December, but the BNSF measure could re-emerge. Meanwhile, shipper sources say STB officials have given assurances that they also plan to address the issue.
As part of Berkshire, BNSF no longer will have to give detailed earnings presentations so analysts can closely compare its operations with other railroads. Nor will it have to submit to analysts' conference calls.
BNSF issued its earnings on Jan. 21 but held no call in the period leading up to its shareholders' vote. Berkshire also is publicly traded, but its quarterly reports provide far less detail about business units than BNSF watchers are accustomed to. And BNSF officials have said only that it has not been determined how much they will disclose after the merger, and how they will say it.
Hatch says they can explain BNSF operations at various industry meetings and analyst-sponsored events, but hopes they also will keep issuing quarterly reports such as last month's. "An ongoing dialogue is helpful for this whole industry," he said.
Some of that dialogue can include questions about rates, equipment decisions and market outlook.
BNSF still will have its own publicly traded debt separate from Berkshire's, and privately held companies regularly file SEC comments related to their debt instruments. Those keeping track include Standard & Poor's Ratings Services, which raised its rating for BNSF long-term debt on Feb. 4 to "BBB plus" from "BBB," while knocking down Berkshire from the top "AAA" rating to "AA plus" over its reduced liquidity after paying for BNSF.
"BNSF's internally generated cash flow is well in excess of capital expenditures and working capital needs," S&P analyst Anita Ogbara said, "and we expect this to remain so following the acquisition."
(The preceding article by John D. Boyd appeared on the Web site www.joc.com on February 15, 2010.)
