So far, we really haven’t seen any analysis to the effect of: Berkshire Hathaway’s (BRK) acquisition of Burlington Northern (BNI) was a great acquisition that will deliver huge value to Berkshire shareholders over time.
Mainly the reacion has been: meh. The cash flow characteristics aren’t too hot, and the price wasn’t all that cheap — certainly not so cheap that it was worth making the biggest acquisition in the company’s history.
And indeed Doug Kass, a self-avowed Buffett-worshiper, finds himself in the same camp.
He raises various concerns, such as:
- The valuation is definitely not Graham & Dodd-like.
- Berkshire’s cash-hoard is now materially depleted
- Buffett was forced to pay stock and affect a big stock split — both very un-Buffett things to do.
On to the negative side of the ledger, given his age (and the growing possibility that Buffett might hand over running Berkshire to his successor sooner than later), the size of the Burlington Northern deal relative to Berkshire’s cash position and the scope of the deal (and the need to consolidate Burlington Northern’s operations into Berkshire), this is likely the last meaningful deal that Warren Buffett will make.
As there arguably still remains a Buffett share price “premium,” I would now make the case that the interaction of the above factors will lead investors to valuing Berkshire Hathaway more like a closed-end fund (selling at a discount to its underlying or “intrinsic” value) and less like the premium and prized possession that it has been over the past 40-plus years.