OT- Here is an article about the borrowing...
* NOVEMBER 6, 2009, 7:56 P.M. ET
Berkshire To Borrow Billions For Burlington Deal
By Alistair Barr, WSJ
Berkshire Hathaway Inc. (BRKA, BRKB) said late Friday that it plans to borrow roughly $8 billion to help the company pay for its acquisition of railroad operator Burlington Northern Santa Fe Corp. (BNI).
Berkshire agreed earlier this week to pay $26 billion for the rest of Burlington it doesn't already own. The company is paying 60% of that with cash and the rest with Berkshire stock.
In a regulatory filing late Friday, Berkshire said it "expects to fund about 50% of the total cash consideration of approximately $16 billion with internally generated cash and the remainder with borrowings expected to be repaid over a three-year period."
Berkshire Chairman Warren Buffett is known for shunning debt, and during the credit boom earlier this decade he criticized private-equity firms, which specialize in leveraged buyouts.
At the height of the market boom, Berkshire had amassed more than $40 billion in cash. However, Buffett has been putting a lot of that money to work since the financial crisis triggered a stock-market slump last year.
By the end of September, Berkshire had $23.84 billion in cash and cash equivalents. That probably made it impossible to pay for the $26 billion Burlington deal with just the funds at hand.
After the deal was announced, Standard & Poor's warned that it may cut Berkshire's AAA ratings on concern cash will be pulled out of the company's insurance subsidiaries.
"This transaction will decrease the liquidity and capital adequacy of the insurance operations," Standard & Poor's credit analyst John Iten said. "For the consolidated organization, financial leverage will increase."
Buffett's decision to acquire Burlington Northern (BNI), despite having to borrow money, suggests he was more keen than normal to do the deal. Indeed, he called the acquisitions an "all-in wager" on the U.S. economy.
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60% cash/40% stock.
The stock component of the consideration is subject to a "collar" whereby the value of each Berkshire Hathaway share received is fixed at $100.00 if the price of Berkshire Hathaway Class A stock at closing is between approximately $80K and ~$125K per share. If the value of Berkshire Hathaway Class A stock is outside of this collar range at closing, then the number of shares received of Berkshire Hathaway Class A stock will be fixed at either 0.001253489 per BNI share for values below the collar range, or 0.000802233 per BNI share for values above the collar range. The shareholder may receive Class A or, in lieu of fractional Class A shares, equivalent economic value of Class B Berkshire Hathaway shares, subject to certain limitations as described in the definitive agreement. The transaction requires approval by holders of two-thirds of BNI's outstanding shares (other than shares held by Berkshire Hathaway), and customary closing conditions, including Department of Justice review. Closing is expected to occur during the first quarter of 2010.
The main risks are financing risks and market/stock price risks. I also would guess it should close by the end of 1Q 2010. "A" share 52 week low was $70k.
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Different topic.
Happy Veterans Day to all. I know it is the political correct thing to say but screw political correct and say thanks to a Vet and to their families. People have been giving up 1st class seats, etc. for soldiers. Not too much to give up for what they are giving up body and soul for me and my family. Happy Veterans Day to all. |
