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BNSF and BRK merger valuation


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Some interesting stuff here:




BNSF share holder meeting on Feb 11th.


On BNSF valuation:


Mr. Buffett discussed a transaction in which 40% of the consideration would be paid in Berkshire common stock and 60% of the consideration would be paid in cash. Mr. Buffett expressed his belief that fair value for BNSF’s common stock was in the mid-$90s per share, and that therefore the $100 per share price he was contemplating was, in Mr. Buffett’s view, as high as Berkshire could pay.


Mr. Rose requested that Mr. Buffett increase the merger consideration above $100 per share. In response, Mr. Buffett informed Mr. Rose that $100 per share was at the very top of the range that he was willing to pay for BNSF and therefore Berkshire would not be willing to increase the merger consideration. In that discussion, Mr. Buffett confirmed to Mr. Rose that Berkshire would agree to a collar on the stock portion of the consideration, such that the value of the stock portion of the consideration would be fixed at $100 per share so long as the shares of Berkshire Class A common stock traded between approximately $80,000 and $125,000 per share.


Interesting also is the total income growth scenarios (EPS) - if the recovery starts in 2010, it is 18% compounded to 2014, if it is in 2011, it is 14% till 2014. If there is no recovery or a deeper recession, the earnings would be negative.


Interesting also is the combination of balance sheets to see how things can look. From 2008 balance sheet, the merger can add 1K/A Share and from 2009, it can add about 550/600 dollars including the dilution.


Given the low multiples Berkshire fetches, this should mean increased share price of anywhere from $6000/share to $12,000/share immediately including dilution.



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