Buffett pleased with BNSF acquisition

In a  letter addressed “To the Shareholders of Berkshire Hathaway Inc.” dated February 26, Chairman Warren E. Buffett hailed the holding company’s acquisition in 2010 of BNSF Railway as a key factor in the company’s successful year and, as well, its bright future.

“The highlight of 2010 was our acquisition of Burlington Northern Santa Fe, a purchase that’s working out even better than I expected,” Buffett (pictured at left) wrote in the letter’s second paragraph. “It now appears that owning this railroad will increase Berkshire’s ‘normal’ earning power by nearly 40% pre-tax and by well over 30% after-tax. Making this purchase increased our share count by 6% and used $22 billion of cash. Since we’ve quickly replenished the cash, the economics of this transaction have turned out very well.”

With BNSF included in the holding company’s diversified portfolio, “The per-share book value of both our Class A and Class B stock increased by 13% in 2010. Over the last 46 years (that is, since present management took over), book value has grown from $19 to $95,453, a rate of 20.2% compounded annually,” Buffett said.

Both Buffett and Berkshire Hathaway Vice Chairman Charlie Munger “are enthusiastic about BNSF’s future because railroads have major cost and environmental advantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That’s three times more fuel-efficient than trucking, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits.

“Over time, the movement of goods in the United States will increase, and BNSF should get its full share of the gain. The railroad will need to invest massively to bring about this growth, but no one is better situated than Berkshire to supply the funds required. However slow the economy, or chaotic the markets, our checks will clear,” Buffett wrote.

Buffett’s satisfaction with BNSF may extend more personally to CEO Matt Rose (pictured at right). Berkshire Hathaway’s 10-K securities filing Monday listed four internal candidates as a successor to The Oracle of Omaha, as opposed to three candidates mentioned in prior years. Since the filing identifies each candidate as a “current Berkshire subsidiary manager,” Rose, as the newest such manager within Berkshire Hathaway, is considered a likely addition, though Rose is not named.