I had a feeling there was an energy component to the Berkshire Hathaway decision to buy Burlington Northern Santa Fe. And now comes the evidence via coal, a major freight on BNSF's tracks. But, there is a lot more to this acquisition than just hauling coal.
Warren Buffett has been increasing his energy plays in recent years, both in the U.S. and abroad. he has said repeatedly that he likes energy and power. His chief asset in the U.S. is Mid-American Energy, a major utility company whose CEO is often touted as one of the eventual successors to Buffett at the helm of Berkshire.
On the other hand, Berkshire was on record as hating the railroad business. When I was a panellist on BNN TV in Canada at noon today, fellow panellist Brian Milner, business columnist at the Globe & Mail in Toronto, mentioned that Charlie Munger, Buffett's right-hand man at Berkshire, said two years ago he and Buffett hated the fundamentals of the railroad business. Rolfe Winkler has a good post showing that the BNSF acquisition is fully priced. So, what gives – why is Berkshire paying top dollar for a company in an industry with what it used to describe as poor fundamentals?
The answer is coal.
This comes via MarketWatch (hat tip PapaSwamp):
Berkshire Hathaway Inc.'s $44 billion deal to buy Burlington Northern Santa Fe Corp. is basically a huge bet on coal, a fuel that powers Warren Buffett's power plants at his MidAmerican Energy utility and plays a major role in the railroad business.
While regulatory delays and uncertainty over climate-change legislation has slowed the addition of new U.S. coal plants, plenty of new facilities are expected to come on line in the United States, becoming prospects for future growth for the railroads.
Nine new coal plants have been permitted in the United States and 25 are under construction for a combined generation capacity of nearly 15,000 megawatts, according to an Oct. 9 report by the National Energy Technology Laboratory.
Moves by the Obama administration to curb emissions in proposed climate-change legislation are also anticipated to push the generation industry toward wider use of carbon-capture and storage technology at coal plants, which still supply nearly half of America's electricity.
With the U.S.
