No. of Recommendations: 15
First, it appears to be a given that UP is going to make an offer for Norfolk-Southern. Greg should talk to CSX and reach an agreement on a deal. It won't be cheap but the reality is that BNSF will have no choice but to buy it. An analyst predicted that BRK would have to pay 25X earnings. Do it and do it quickly while UP is still in negotiations. I know a few things about railroads. They are hard to build, because rights-of-way are tougher to come by these days. I know that they are highly unionized. And I know they are highly regulated.
(Disclosure: I also know a little about Lionel train sets, having had one when I was 9, HO train sets, having had one when I was 16, and Z-gauge, having had one when I was 40. But I don’t think any of that counts. ;)
A NS and UP merger would create the first and only coast to coast railroad which (in theory) could lead to many efficiencies, not the least of which is routing so many West Coast deliveries (from Asia) to the East where most people live. I have looked at the maps of the Big 6 railroads, but frankly can’t divine anything meaningful from it, perhaps others can?
https://tinyurl.com/mrb26x56 (Tiny url link leads to Wikipedia because the original link does not render correctly here for some reason.)
It occurs to me that there are major switching centers in Chicago, New Orleans, and Memphis, so much of the traffic would have to be switched and routed there anyway, but keeping the stuff on your own trackage really ought to be cheaper, at least in my mind (although maybe as common carriers it wouldn’t?) but I’m sure there are some (dreaded word) synergies to be had.
However I have to say it would be most unlike Warren to “pay up” for an acquisition, even a complementary one, so I would be surprised if this were to happen. From my reading of the various maps it would appear there is little overlap in territory between UP and NS, so at least that shouldn’t cause too many regulatory headaches pursuing a merger. I’m sure there are others, of course.
BNSF NI was $5B last year, out of Berkshire’s $90B. Big but hardly overwhelming. That said, it’s a lovely highly moated business, and assuming we keep shipping stuff from China/Asia to people in the US, and US foodstuffs to people in Asia, one with a long life span ahead. Driverless trucks may be nibble at a few edges, but the volumes are so vastly different in what they are able to carry that it’s hard to see an end - ever - to railroads. Asteroids and nuclear war excepted, of course.
Then again, there is that huge cash pile.
As for Kraft/Heinz, the less said the better, in my view, so I won’t.
