A class-action lawsuit is being readied challenging Berkshire Hathaway Inc.'s proposed $100 a share, $44 billion acquisition of the Burlington Northern Santa Fe Railway Co. (BNSF) as being too low a price tag for the railroad, according to a published report.
Progressive Railroading, a magazine for railroad industry professionals, reported on its Web site Dec. 8 that law firms in Texas and Delaware plan to merge about a dozen lawsuits into one class-action suit alleging that Berkshire's offer is underpriced. The firms want Berkshire to increase its offer either through an out-of-court settlement or a jury verdict, the publication reported.
In a statement, BNSF spokeswoman Suann Lundsberg said, "Unfortunately, it has become almost a universal occurrence for certain law firms to file lawsuits of this type around any corporate [merger and acquisition] activity." She declined further comment, citing pending litigation.
Berkshire, controlled by billionaire investor Warren Buffett, announced the proposed deal Nov. 3. At the time, Buffett said the purchase price represented "no bargain" for Berkshire. In what has become an oft-repeated quote, Buffett called the offer for BNSF an "all-in bet" on the future of the U.S. economy.
The purchase price represents a 31-percent premium over the price of BNSF stock at the close of trading the day before the deal was announced. However, the price is about 15 percent below BNSF stock's all-time high of $114.56, reached in June 2008. It is also 15 percent above BNSF's 2009 high of $86.50 a share reached Oct. 14.
In early November, investment firm JPMorgan Chase analyzed the acquisition value of 12 major rail transactions —including the proposed Berkshire-BNSF deal —dating back to 1995. Morgan found that rail transactions during that period were priced at multiples of seven to 15 times of the railroads' earnings before interest, taxes, depreciation, and amortization (EBITDA) on a prior-year basis. According to Morgan, Berkshire is paying a multiple of 9.2 on the "cyclically depressed 2009 EBITDA for BNSF, and 8.5 times 2010 EBITDA for the company."
Based on its data, Morgan concluded that the "deal price appears low." Virtually no one expects a competing offer for BNSF because no company other than Berkshire has the resources or the motivation to undertake such an effort.
In a related development, both companies announced the Federal Trade Commission (FTC) has granted them early termination of the mandatory waiting period under the Hart-Scott-Rodino Antitrust Improvement Act. The FTC action means the deal passes antitrust muster with federal regulators. Regulatory approval was virtually assured, since the BNSF is being acquired by a non-railroad entity.