Buffet must know something we don’t
NEW YORK (Reuters) - Warren Buffett’s Berkshire Hathaway Inc will pay $26 billion to buy out Burlington Northern Santa Fe Corp in a bet that the nation’s largest rail company is poised to benefit from a recovering U.S. economy.
The deal announced Tuesday, Buffett’s biggest-ever acquisition, also represents a bet on coal and new interest in a storied but highly cyclical American industry that has tried to reinvent itself by emphasizing its ability to move goods cheaply and efficiently.
The deal was priced at a premium of 31.5 percent over BNSF’s closing stock price on Monday and values the railroad at $34 billion, or 18 times estimated 2010 earnings. BNSF shares jumped 28 percent in afternoon trading; other U.S. and Canadian rail shares also rose.
“It’s an all-in wager on the economic future of the United States,” Buffett, who has been building up his rail holdings for several years, said in a statement. “I love these bets.”
Reversing his long-time opposition to share splits, which has resulted in Berkshire having the highest per-share prices of any shares on the New York Stock Exchange, Buffett agreed to a 50-for-1 split of Class B stock, which will make it much more accessible to retail investors.
The Class B shares trade at over $3,000, and the Class A shares at more than $100,000. The B shares were up about 2 percent and the A shares about 1.5 percent.
Buffett, one of the world’s richest men and one of its most revered investors, is known for making big long-term bets. In October 2008, soon after the collapse of Lehman Brothers set off worldwide selling, he wrote in The New York Times: “Fears regarding the long-term prosperity of the nation’s many sound companies make no sense.”
Berkshire would pay $100 per share in cash and stock for the 77.4 percent of BNSF shares it does not already own, and would also assume $10 billion of BNSF debt. It would pay about $16 billion in cash, of which $8 billion would be from its own funds and the rest from debt.
Berkshire could not do an all-stock deal because it would deplete its capital beyond what insurance regulators would allow, said Justin Fuller, an analyst at Midway Capital Research & Management in Chicago and author of the Buffettologist.com blog.
Berkshire’s biggest holdings include insurers like Geico, although it has close to 80 units with products ranging from carpeting to natural gas, ice cream, paint and underwear.
“They tend to accumulate capital faster than they know what to do with it, and this is a really good deal for them,” Fuller said. “It will create a lot of value for Berkshire.”
RECOVERING ECONOMY
The deal, expected to close in the first quarter of 2010, comes as the U.S. economy is beginning to recover from its worst downturn since World War Two. U.S. gross domestic product grew at a 3.5 percent annual rate in the third quarter, the first quarterly growth in more than a year.
BNSF, the No. 1 U.S. railroad by revenue, operates in the U.S. West and Midwest. It said in September that freight volumes were recovering and it was encouraged by an improvement in consumer-related markets.
“Berkshire is seeing way past some impending economic recovery signs now and looking into the future,” said Peter Boockvar, equity strategist at Miller Tabak + Co in New York. Continued…
NEW YORK (Reuters) - Warren Buffett’s Berkshire Hathaway Inc versera 26 milliards de dollars pour racheter la Burlington Northern Santa Fe Corp dans un pari que les plus grands de la nation entreprise ferroviaire est en passe de bénéficier d’une économie américaine en convalescence. L’accord annoncé mardi, le plus grand Buffett-acquisition jamais réalisée, représente aussi un pari sur le charbon et un nouvel intérêt dans une industrie américaine étagé mais très cycliques qui a tenté de se réinventer en insistant sur sa capacité à transporter des marchandises bon marché et efficace. L’opération a été au prix d’une prime de 31,5 pour cent sur le cours des actions de BNSF de clôture, le lundi et valeurs de la voie ferrée à 34 milliards de dollars, soit 18 fois le bénéfice estimé 2010. BNSF part bondi de 28 pour cent dans le commerce après-midi, d’autres actions américaines et canadiennes ferroviaire a également augmenté. «C’est un tout-en pari sur l’avenir économique des États-Unis”, Buffett, qui a été la constitution de sa Rail Holdings depuis plusieurs années, a déclaré dans un communiqué. «J’adore ces paris.” Inverser son opposition de longue date aux fractionnements d’actions, ce qui a entraîné dans le Berkshire ayant le plus haut prix à proportion de toutes les actions à la Bourse de New York, Buffett a convenu d’un 50-pour-1 scission des actions de classe B, qui fera beaucoup plus accessible aux petits investisseurs. Les actions de catégorie B du commerce à plus de 3000 $, et les actions de catégorie A à plus de 100.000 $. Les actions B ont augmenté d’environ 2 pour cent et les actions A environ 1,5 pour cent. Buffett, l’un des hommes les plus riches du monde et l’un des investisseurs les plus vénérés, est connu pour faire des paris à long terme de gros. En Octobre 2008, peu après l’effondrement de Lehman Brothers partit vendu au monde, il a écrit dans The New York Times: “Les craintes concernant la prospérité à long terme des entreprises de son De nombreux de la nation n’a pas de sens.” Berkshire devrait payer 100 $ par action en numéraire et en actions pour les 77,4 pour cent des actions de BNSF elle ne détient pas encore, et devrait également assumer 10 milliards de dollars de la dette BNSF. Il paierait environ 16 milliards de dollars en espèces, dont 8 milliards de dollars seraient à même ses fonds propres et le reste de la dette. Berkshire pourrait pas faire un deal-stock car elle épuiserait son capital au-delà de ce que la réglementation d’assurance permettrait, a déclaré Justin Fuller, analyste chez Midway Capital Research & Management à Chicago et auteur du blog Buffettologist.com. Plus grande participation de Berkshire compte les assureurs comme Geico, bien qu’il possède près de 80 unités avec des produits allant de la moquette au gaz naturel, de la crème glacée, de peinture et de sous-vêtements. «Ils ont tendance à accumuler le capital plus rapidement qu’elles ne savent quoi faire avec elle, et c’est vraiment une bonne affaire pour eux”, dit Fuller. «Cela va créer beaucoup de valeur pour Berkshire.” RECUPERATION DE L’ÉCONOMIE L’opération, qui devrait être conclue au premier trimestre de 2010, intervient alors que l’économie américaine commence à se remettre de sa pire récession depuis la Seconde Guerre mondiale. Produit intérieur brut américain a progressé à un taux annuel de 3,5 pour cent au troisième trimestre, la croissance trimestrielle en plus d’un an. BNSF, le n ° 1 du chemin de fer des Etats-Unis par des recettes, est présent dans l’Ouest américain et le Midwest. Il a indiqué dans Septembre que les volumes de fret ont été les récupérer et il a été encouragé par une amélioration des marchés liés à la consommation. “Berkshire voit ainsi passé, certains signes de reprise économique imminente maintenant et regarder vers l’avenir”, a déclaré Peter Boockvar, stratège actions chez Miller Tabak + Co à New York. Continued …
As a person who has worked directly with entrepreneurs and investors for over a decade, I have discovered a void in the social skills of the average entrepreneur when approaching an investor.
For example, every person knows that when attempting to develop or kindle a relationship, the single most important feature in likeability. It matters not what a person has, if he or she is not likable, the odds of getting anywhere in a relationship are minimal at best. This is true whether it is a family member, potential mate or business relation.
It was not long ago, I heard an advertisement. The ad was for Match.com and in the announcement it proclaimed they would match a person with a date within six months or give them six months for free. This sounded like a fair deal and then my thoughts applied this same concept to persons seeking the all important relationship with an investor. I then asked myself what an entrepreneur would think if I were to say in an ad, we will find you a funding source within six months or give six months free. Then, I realized even though there are great similarities between meeting a possible mate and meeting a possible business partner or funding source, the average entrepreneur is ill equipped to truly understand the similarities. Truth is most people want a funding source to appear out of nowhere quickly, ask few questions and be ready with checkbook in hand. Furthermore, he or she wants the funding source to overlook anything outside how great his or her new business proposition is, such as, fiduciary experience, personality and past dealings with others. However, positive and confident such an attitude is, it has been my experience that as with any relationship, when seeking a partner one has to connect on many levels, namely, mental, emotional and financial to get a person to want the relationship to continue. Moreover, I know this is especially true when asking an investor to allow money to leave his or her bank account. The whole thought process I went through made it clear that entrepreneurs had to somehow embrace the realities of life and understand that the basics from dating apply to investors too.
Let us look at the most valuable of human experiences — comfortable interaction and acceptance of other humans. Who does not want the respect and admiration of other humans? Yes, it varies, and people have preferences from whom they wish to get praise and camaraderie. But, in all echelons and categories, people want to interact with others that make them feel good while enjoying the emotional warmth in knowing time spent together is uplifting and worthwhile. Further, virtually all people know that even the closest bonds have limits. For example, it is well known, if one takes advantage of family members and or treats them with disregard; a time will arrive wherein one has worn out a welcome. In addition, if one goes on a date and is too aggressive, a second date will likely not occur. And, in business we all know that if we are unkind to a customer, the customer will go elsewhere to make future purchases. These social skills are known by almost everybody, but, when it comes to getting investment capital, it appears the vast majority of entrepreneurs throw out these most basic social skills.
Any person realizes that when seeking even the most basic of human interaction, there is certainly a need for fine tuned social skills. Think about the factors involved to get a date. They are relatively simple. Two people with common interest and an attraction decide they want to meet. Once interest and attraction are clearly present, the date is set and if a mutual likeability and common interest bloom, the relation may move to a higher level.
Now, we must look at a business person seeking funding for his or her business. Not only is there a need for interest and personality attraction, but also there needs to be vast trust and business consensus. An investor and entrepreneur must be congruent at many levels. Too often, I see the person wanting funding act as though an investor is a resource or product to be used only for obtaining capital, given a return on investment and released. That approach has about as much tact and appeal as being on a date and saying I only need a one night stand, it’ll be fun. The fact is, most investors are looking for more than just a quick buck, they are looking for profit and comfort. A feeling they have placed their money with a person and business he or she likes and trusts. The modern investor also likes the thought of helping the entrepreneur and possibly having a positive social impact. And, above all, the investor wants to feel like he or she will know the company and its founder for years to come. In a nutshell, the investor must believe he or she will have a great friendship and business relationship that is highly profitable. The entrepreneur seeking the funding, too often makes the grave error of presenting an image of the hat-in-hand poor-boy asking for money.
Most entrepreneurs spend months or years researching, calculating gaining understanding of how to profit in a particular field. Unfortunately, most don’t realize they are asking an investor to admire his or her business ideas, and be willing to place trust in him or her within a few phone calls. The investor is usually asked to make life changing decisions. Yet, the investor knows little about the entrepreneur’s business and probably even less about the entrepreneur. How silly would a person be to go out on two or three dates and propose marriage? Now compare what an investor is being asked to do — fork over hundreds of thousands or possibly millions of dollars essentially to a stranger on a short notice. Why do people do this to investors? When getting an investor involved in a business relationship, not only does it have ties that bind but much of an ongoing relationship is part of the decision. It is unlikely that anyone will fall in love at first sight with a person and even less likely they will fall in love with the person and their business at FIRST SIGHT. Court the investor as if he or she is the most important relationship you have, it may be!
BreadStreet Author: SJ Fortenberry
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