Berkshire Hathaway Case - Research Paper Example

As a result of this strategy, Berkshire Hathaway currently owns a diverse range of business organizations including home furnishings, retail, jewelry sales, uniforms sales, confectionary, and manufacturing of vacuum cleaners. As stated in the annual report (Berkshire Hathaway 2011 annual report, 2011), recently, on 12th February 2010, Berkshire Hathaway completed the acquisition of BNSF by purchasing the remaining 77.5% of BNSF common stock, and currently, BNSF is a wholly owned subsidiary of Berkshire Hathaway Inc.

This paper will analyze the reasons for the BNSF acquisition and the principles relating to the finance course. BNSF acquisition The BNSF is North America’s ‘second largest freight railroad network’ and one of the seven Class I railroads (BNSF Railway, n.d.). On 3rd November 2009, Berkshire Hathaway announced that the company would acquire BNSF’s remaining 77.4% stocks that Berkshire Hathaway had not owned at that time. This deal was estimated at $44 billion, making it the largest acquisition in the history of the Berkshire Hathaway.

Buffett “agreed to buy Burlington for $34 billion or 100 a share” and “is also taking on about $10 billion of Burlington debt” (Morcroft & Barr, 2009). . Referring to corporate press releases, the company is currently one of the North America’s leading intermodal freight transporters. In the context of the current economic environment, Buffet believes that this acquisition would contribute to the future growth of the company. He says that “our country’s future prosperity depends on its having an efficient and well-maintained rail system;” he adds that “conversely, America must grow and prosper for railroads to do well” (BNSF, Berkshire Hathaway Inc, n.d.).

Buffett’s observation is based on the common fact that infrastructure development is a key element of an economy’s overall development. As Morcroft and Barr (2009) point out, through this acquisition, Buffett has invested in a business which is highly sensitive to a possible economic recovery in the United States. It is clear that the US has not yet completely recovered from the shock of the recent global recession. In this economic environment, railway transportation can be an area that would promote its operations despite the impacts of the recession.

Economists predict that BNSF would perform better and contribute to the expansion of Berkshire Hathaway once the economy is recovered. Some recent reports justify the decision of Warren Buffett. In November 2012, the Berkshire Hathaway announced its third quarter operating results. As per the company reports (as cited in Miller, 2012), a combined total of revenues of three segments (railroad, utilities, and energy) increased by 7.5% and reached $8.4 billion as compared to the same period a year ago; the report also indicates that BNSF contributed nearly 63% to this combined