Why is Buffett buying Burlington Northern? (jobs, economy, capital, check)

[brightdoglover]

I don't see Maglev, etc. for long-distance freight. But "regular" rail, yes. It's already being used, and likely will increase dramatically if/as fuel costs go up.
Long-distance trucking will likely cease to exist. Fewer accidents, less fuel consumption, less wear and tear on highways and bridges, those pesky dealbreakers that they are.
Trucking should never have been the long distance solution that it has been, subsidized in so many ways.

[floridasandy]

Originally Posted by floridasandy

either that, or have government connections to bail you out when you make bad decisions.

either that, or have buffett invest in your company in 2008:


AP (september 24, 2008)
Warren E. Buffett, the country’s most famous investor and one of the world’s richest men, announced on Tuesday that he would invest $5 billion in Goldman Sachs, the embattled Wall Street titan.

i am sure that mr. buffett's profits are rising considerably now.....

[Mike from back east]

Originally Posted by StoneOne

Having done a lot of communications consulting work for rail companies - freight and passenger - overseas, as well as having ridden Europe's wonderful trains, I'm very happy to see some investment going into ours. Event if its several more generations before passenger rail takes off in America, the more freight we can get back on rail, the better we'll be - safer highways, less costly and less frequent road repairs, fuel saved, etc.

As for Warren Buffet's reasoning, I believe he was quoted after the purchase as saying something like the following: "I believe we'll make a good return. Not a great return, but a good return."

Trucking, for the most part, needs to and will return to its roots of being a local service which delivers stuff brought in from long distances on the rails. Now that we have double stacks and large numbers of trailers on flat and well-cars, we can put the long distance trucks on rail cars, move them long distances, then lift them off and deliver them to local recipients. We'll need more trailer yards and shorter trains moving on faster schedules, easy issues to solve.

[Drover]

There will always be a market for getting products from point A to point B quicker than a train will get them there, especially in today's world of tight inventory control, so OTR trucking is here to stay.

[Mike from back east]

Here's a guy who crunched some numbers and came up with a basic insight into why Buffett is buying BNI. Excerpt:

- ... another example of buying boring, productive assets at pennies on the dollar of their replacement cost.

- ... for $44B Buffett bought 32,000 miles of rail (he also gets 220,000 rail cars, buildings and land but that's just icing on the cake). That comes to just $1.375M a mile. How much would it cost to replace these assets? Well, China just announced they plan to build a bunch of new rail lines at a cost of over 20 million dollars a mile. And that's in China -- you can bet the cost would be quite a bit higher here.


Pennies on the dollar. Classic Buffett. No hidden motive. No deep hidden meaning. Just VALUE.

Yes, some OTR trucking will always be present. Higher fuel prices will drive longer hauls off the highways and onto the rail. JIT manufacturing will adapt to rails and rails will adapt to JIT inventory control as money dictates.

[floridasandy]

Buffett decided he did not need investment bankers when he negotiated his rapid takeover of Burlington Northern Santa Fe Corp even as the railroad was represented by veteran banker Roger Altman's boutique firm Evercore, as well as Goldman Sachs. ].


The $26 billion deal pushes Evercore -- which advised Burlington alongside M&A juggernaut Goldman Sachs -- up the closely followed league tables.

It will also give the pair a sweet payday with estimated fees of $50 million to $55 million, according to data from Thomson Reuters and Freeman Consulting.


an interesting piece on the buffett / goldman connections:
http://www.futureofcapitalism.com/20...warren-buffett

[marmac]

Originally Posted by Mike from back east

Here's a guy who crunched some numbers and came up with a basic insight into why Buffett is buying BNI. Excerpt:

- ... another example of buying boring, productive assets at pennies on the dollar of their replacement cost.

- ... for $44B Buffett bought 32,000 miles of rail (he also gets 220,000 rail cars, buildings and land but that's just icing on the cake). That comes to just $1.375M a mile. How much would it cost to replace these assets? Well, China just announced they plan to build a bunch of new rail lines at a cost of over 20 million dollars a mile. And that's in China -- you can bet the cost would be quite a bit higher here.


Pennies on the dollar. Classic Buffett. No hidden motive. No deep hidden meaning. Just VALUE.

Yes, some OTR trucking will always be present. Higher fuel prices will drive longer hauls off the highways and onto the rail. JIT manufacturing will adapt to rails and rails will adapt to JIT inventory control as money dictates.

Your comparing costs to build a rail line in China is somewhat flawed.

It cost huge amounts of money ( in today's money) to build the rail lines in the US a century ago.

However, the resale value of a rail line is based on the revenue that operating rail line brings in.

Posters have stated how much value the land Buffett got in the deal was worth. That land and 25 cents will get Buffett coffee at Ma and Pa's Kettle cafe in Cameron Missouri.

When a railroad ceases to operate what is that rail road land converted to ?
bike trails
( and that land is usually gotten from the RR for next to nothing)

What Buffett bought is very valuable, but if it ceased operating due to low profits, the steel rails would probably be the only thing of value he would be left with.

[marmac]

By the way, I don't see railroads replacing trucking ( as some have stated)

Too many rail lines that were mainstays in the 1950's have been converted to bike paths.

The cost to convert them back to rail lines would be prohibitive.

[floridasandy]

Originally Posted by marmac

By the way, I don't see railroads replacing trucking ( as some have stated)

Too many rail lines that were mainstays in the 1950's have been converted to bike paths.

The cost to convert them back to rail lines would be prohibitive.

i agree. there are too many jobs tied up in the trucking industry for it to just roll over and die.

[floridasandy]

another interesting buffett piece:
Rolfe Winkler » Blog Archive » Buffett’s Betrayal | Blogs |
http://blogs.reuters.com/rolfe-winkl...t-bailout2.jpg (this link breaks it down)