Message Font: Serif | Sans-Serif
No. of Recommendations: 35
Berkshire's purchase price allocation for BNSF, including previously owned shares of BNSF valued at the date of the acquisition) was $34.5 billion. Berkshire's actual cost was less since the minority position was purchased for less, but $34.5 billion was the amount put on the books for the acquisition two years ago. Book value as of 12/31/11 was $34,749 million. At the time of purchase two years ago, Berkshire's railroad operations by definition were worth exactly 1.0x book value.

BNSF earned $2,972 million in 2011 on revenues of $19,548 million. For comparison, Union Pacific earned $3,292 million on revenues of $19,557 million. Union Pacific's market cap is $53.2 billion giving it a trailing P/E of 16.2x. Union Pacific's market price is up 75% since 2/10/2010, the date of Berkshire's acquisition of BNSF.

BNSF and Union Pacific are very similar. Union Pacific has a somewhat better operating ratio. But let's just say BNSF should have a trailing P/E of 15.5. That would give it a current market value of $46 billion. That's $11.2 billion above Berkshire's carrying value. Or an implied P/B for the railroad business alone of 1.32 - a business carried at 1.0x book value two years ago.

Berkshire Hathaway's trailing p/b ratio one year ago was 1.33 vs. 1.18 today. Two years ago, trailing p/b was 1.43.

If Berkshire's "fair value P/B" is only 1.18 today versus 1.43 at the time BNSF was acquired, that must mean massive value was destroyed somewhere ... or Mr. Market might be wrong.
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.