Burlington Northern Santa Fe

As you all might know by know, Warren Buffet has just made the investment of his life, a total investment of 44 billion dollars bet on Burlington Northern Santa Fe, a company based on railroads, a business relying heavily on coal as well. Other than the investment on railroads, I surmise that the coal industry will soon hit the top as well. There will definitely be a renewed interest in coal later on.

Berkshire (BRKA, Fortune 500), which already has major stake in Burlington Northern, said it would acquire the remaining 77.4% of the company in a cash-and-stock offer worth $100 per share.


"Our country's future prosperity depends on its having an efficient and well-maintained rail system," Buffett said in a statement.


An efficient and well-maintained rail system in the future? Why is it important? Personally, I have to say this news came as a shock to me. Just when I am in the midst of focusing on the airlines industry, Warren Buffett has to invest in the railroad industry. A big move like that has suddenly shifted all our focus onto the railroad industry. That's the undeniable immense amount of influence Warren Buffett has on everyone of us when it comes to investment.

I believe that in the railroad industry, it all comes down to sustainability like all other businesses. In the near future, there will be a heavy reliance on the public transports as the maintainence fees of maintaining a car is going to be tremendously expensive. Hence, it is important to ensure that the public transport will not break down, not even once so to speak. It is that crucial and thus, the rail system must be ready to operate efficiently in a timely manner, like coming on time, with a high frequency rate, no breakdowns especially in the railway systems, trains functioning properly at all times and of course no breakdown of services. All these factors are extremely important because an interruption in service provision can possibly incur millions of dollars of losses in an instant, say a short period of a couple of hours. The more devastating damage is on the consumers confidence and that is usually hard to repair.

No management changes will be made even after the deal, which is expected to be completed by early 2010.


Once again, it is down to the management changes, the whole issue about corporate culture and organizational changes. Management, being at the peak of operations in a company, must be handled properly and every single details must be scrutinized time and again. When companies are involved in acqusition or merger deals, they are always worried if the acquired company can be successfully integrated into Berkshire Hathaway given the scale of its operations.


It is definitely a heavy relief to hear that such a gargantuan company like Burlington can actually be integrated into Berkshire Hathaway without any single management changes.

Nonetheless, I am still a little skeptical about its integration at this point in time because the railway system is getting a little backward now as we can see that Japan has actually moved on so far ahead in the railway industry with trains moving at an immensely high speed. It will be a challenge for Buffett not to make any changes to the management of Burlington to cope with the competitors in the industry per se.


All in all, I still believe in Warren Buffett's choice to acquire such a big company. He is THE investor of the lifetime, not a single investor in the world is anywhere near his status. Furthermore, this is the biggest investment he has made in his entire life, what can we do now other than following him in this fight of the millenium?



Credit -cnn, -tomclegg, -mopo, -imotibg, -japaninfoswap