I suspect there is lot more to the valuation equation than the P/E multiple for BNI seems high and Berkshire stock seems cheap just based on snapshot metrics. The calculus was probably a lot more complex than Buffett publicly revealed with some likely factors being: 1) BNI's excess cash flow can be reinvested at higher rates w/ Buffett accessing/allocating all of BNI's capital; 2) Over time, BNI would enjoy lower cost financing being financed at Berkshire vs. as a BBB rated company (lowering interest expense and thus the effective P/E multiple paid); 3) Using stock was essential (in Buffet's mind) to keep Berkshire at a AAA like balance sheet to properly capitalize the insurance businesses and take advantage of future investment opportunities that a only AAA balance sheet can allow; 4) BNI diversified Berkshire away from consumer/financial businesses; 5) as the only hauler of PRB coal (cleanest coal) to the utilities in the southeast (no other rail does this), BNI retains pricing power in an inflationary environment (a major Buffett concern being inflationary pressures over time--owning this business is another way of expressing a bearish view on LT interest rates/treasuries, which the insurance businesses are heavily exposed to); 6) with nearly 50% of BNI's revenues going to utilities utilizing coal fired plants, the acquisition is a bet that coal (especially PRB) will be the dominant coal for the long term; 7) there is upside potential from the growth of shipping to Asia over time, which will boost intermodal revenues.
I doubt this will happen because to Buffett, being a AAA -like company is critical and has its own long-term value creation qualities, but using stock to conduct an acquisition and then immediately repurchasing shares is a tax efficient way for BNI shareholders to participate in owning Berkshire shares while all of Berkshire shareholders recapture the value dilution of using undervalued stock to acquire "overvalued" stock. Buffett was an ardent supporter of this capital allocation strategy when P&G acquired Gillette.
