Buffett's Big Bet

"I put it all on Lucky Dan, half a million dollars to win."
--Doyle Lonnegan (The Sting)

A couple days back, Berkshire Hathaway (BRK.A) announced a $40+ billion acquisition of Burlington Northern Santa Fe Corp (BNI). Warren Buffett termed the purchase "an all-in wager on the economic future of the United States."

I (and others e.g., Toddo) find Buffett's actions (and choice of words) interesting. Berkshire will deplete considerable cash to fund this acquisition as well as issue significant stock. This will place Berk in a less liquid, more leveraged state, which may impact the company's credit rating.

The company will also split its B shares 50 to 1 to permit BNI shareholders to more easily participate in Berkshire stock. A stock split is something Buffett long claimed he would never do, since it attracts the hot money trading set.

Like his 'Buy Stocks' call last fall, I find Buffett's actions curious. BNI is no high margin/low capital business. Moreover, I don't see the current macro picture as fitting for making an 'all-in wager' on our economic future.

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