Warren Buffett’s Burlington Deal – Is It Green?
Yesterday Warren Buffett, the world’s second richest but most twinkly man, made what one hedge fund manager described as “his last meaningful deal” – an epic buyout of Burlington Northern Santa Fe, a rail operator that ships freight around its 32,000 miles of track.
Some synapse-freaking numbers for you: Buffett spent $26.6bn yesterday, but he already owned 22.5% of Burlington, so the company is now valued at $34bn, plus Buffett has taken on $10bn of the company’s debt. And Berkshire Hathaway, Buffett’s holding company, still has $20bn to play with, and play with it he will.
It’s a turnaround for Buffett, who was slagging off rail in the middle part of this decade – now, while acknowledging that rail requires constant injections of capital to keep it rolling, Buffett is putting his faith in rail being a growing sector. And away from the pell-mell of the stock markets and debate over whether the economy is going to pick up enough to warrant this investment, the most interesting part of this deal is what it says about America’s environmentally-conscious future.
On the one hand, Buffett is putting his faith in coal with this deal. Burlington hauls enough coal to power one in every ten American homes – it’s their second-largest revenue generator after consumer products. Buffett is keen to point out that coal from the American West, which Burlington serves, is “more competitive, it’s lower-sulfur coal than in the East”, and while he admits that “over time, coal is going to diminish somewhat”, he’s still gone into this deal because he knows America will be running on coal for many years to come. He plays up his green credentials, citing his use of wind power, but he also runs 11 coal-fired power stations through MidAmerican Energy. If the Oracle says coal is profitable, then it’s profitable.
On the other hand, his faith in rail implies a lack of faith in road haulage. With oil prices set to rise, it makes sense for Buffett to invest in the most fuel-efficient means of transportation – he said yesterday that one gallon of diesel can haul a ton of goods for 471 miles with BNSF trains. Lower fuel costs mean lower haulage prices, which means a competitive advantage. Indeed, if oil prices continue to rise, “long haul trucking could be a dinosaur”, as Scott Edward Anderson told Fox News yesterday – Anderson, of Greenskeptic.com, said that a likely scenario is of long-haul rail linking with short-haul hybrid vehicles. Buffett, along with his investment in Chinese auto and electric car battery manufacturer BYD, is clearly shoring up Berkshire for a post-carbon future. Buffett is only following larger trends, but the sums of money he’s spending are so large and his influence so strong, that he himself is accelerating these changes in American energy habits.
Though of course it could be that the main reason for Buffett buying up the railway is that it’s because he knows about the impending removal of global borders, and is therefore planning to better do business in what were formerly known as Canada and Mexico. Yeah, that’s probably it.
Photo: Art Comments
Posted by Ben Beaumont-Thomas in Green Rush | November 4, 2009 12:41PM |
