OMAHA, Neb. — BNSF Railway wants to date CSX — but has no interest in getting married.
Five days after Union Pacific announced its $85 billion deal to acquire Norfolk Southern, Berkshire Hathaway Chairman Warren Buffett and CEO designate Greg Abel told CSX CEO Joe Hinrichs that they would not bid for the Eastern railroad.
Rather, Buffett told CNBC in an interview today, Berkshire believes that its BNSF Railway should forge closer ties with CSX to gain growth synergies without the expense and regulatory risk of a merger.
Buffett also told CNBC that Berkshire would not launch a competing bid for Norfolk Southern.
CSX stock fell 5% after the cable network’s report. Wall Street analysts and industry observers have expected that BNSF would seek to acquire CSX as a competitive response to the UP-NS merger.
Buffett and Abel met with Hinrichs on Aug. 3 in Omaha, Berkshire’s hometown. The Omaha-based UP and NS on July 29 announced their deal to create the first U.S. transcontinental railroad.
BNSF and CSX on Friday said that they would launch more interline intermodal service linking California and the Southwest with points on CSX in the Southeast. The railroads also will offer international intermodal service connecting Kansas City with the ports of New York/New Jersey and Virginia.
Earlier this year — amid merger talk from UP CEO Jim Vena — BNSF said it did not see the catalyst for a megamerger involving Class I railroads.
“For a merger to happen in today’s environment, our customers, policymakers, and the communities we serve would need to indicate that they want to see additional mergers,” BNSF spokesman Zak Andersen said in May. “We view it as unlikely as we aren’t hearing from our customers or the other constituencies that they want to see further consolidation in the industry at this point in time.”
Until Buffett’s remarks today, neither BNSF nor Berkshire had commented on the UP-NS deal.
The UP-NS merger will be the first to be judged under the Surface Transportation Board’s tougher 2001 review rules, which require the combining Class I railroads to enhance competition and be in the public interest.
The railroads expect to file their merger application by the end of January, although Vena says he would like to see it filed by early November.
Independent rail analyst Anthony B. Hatch says it’s conceivable that this is not Berkshire Hathaway’s last word on mergers.
BNSF and CSX could seek to win concessions as part of the UP-NS merger review process, he says. If the STB approves the deal, BNSF and CSX could then turn around and argue that they need to merge, too, Hatch says.
Note: Updated at 3:09 p.m. Central with comment from Anthony B. Hatch.
I think the RR analyst has a point. Berkshire and CSX will demand and extract multiple concessions from UP & NS, and then reconsider after after the legal and physical merger is consummated. Something to watch for. I do not think Warren Buffet will still be running Berkshire when if and when it happens.
The thing you folks don’t understand is that Greg Able and the other five major investors with Warren Buffet and Berkshire Hathaway are in total agreement with Buffet’s investment strategy. Having worked for a subsidiary of the company, I know there will be no changing from the direction BNSF is going. JB Hunt and CMA-CGM mean more to BNSF than any potential merger just for Wall Street’s benefit. Like Jack Fuller said on another thread, BNSF’s earning call reported that intermodal was, “…55% of BNSF’s volume and 33% of their revenue…” BNSF WILL NOT do anything to upset those two customers. They will not do anything that anyone else can dictate the terms of any action to them. It is the beauty of being privately owned. You don’t have Ancora’s telling you to make changes to your operation that could in anyway jeopardize your operational plan. When Buffet is gone (as in not on this earth anymore) it will be just as if Greg Able has a direct line to heaven. Buffet’s methods are ingrained in people who will not depart from that path, because they totally agree and have made TONS of money without giving up any control. As we have all learned, when you accept Wall Street money, you give up a measure of control. That will never happen at Berkshire Hathaway or in this case BNSF. Write it in STONE!
It’s the suits and bankers who want mergers and they alone stand to benefit from any deals. The customers, workers, and community at large gain little or nothing in a best-case scenario, and lose if – no, not if, when – things are botched. Buffett, at any age, is still all about building business, not stripping it for parts, what the finance guys call “unlocking shareholder value.”
For being beyond his prime he sure is continuing to make a butt load of money.
A lot of people would love to have his cash reserve.
Warren Buffett is 94 or 95 years old. He was way beyond his prime. He should have had the grace to retire a long time ago.
Contrary to what some people seem to think, no one is indispensable. No one. Older people – I am 86 – should have the wisdom to turn it over to younger people before run it into the ground.
I’d listen to Buffet before a boatload of younger executives who ran things into the ground – at Sears, GE, Cracker Barrel, EHH and more than you can shake a stick at.
I can attest that Mr. Buffett has a competent set of lieutenants that completely understand his directives and goals and have no problems following through.
The reason BNSF didn’t speak up right away was probably because he was waiting to get the facts of the matter from them before making any statements. A path usually taken by someone who is patient and not subject to making rash or emotional decisions.
He has turned it over to younger people. Greg Able is the CEO of Berkshire Hathaway, He is in his 50’s. There are several others who are leading all the companies in Berkshire’s portfolio from utilities to furniture sales companies. They are all of the preferred stock holders, They have all accepted the Buffet methodology of making a butt load of money. They are 100% committed to doing things the Warren Way. SO the next generation is already in place. Buffet has already set in place the succession plan…
The Sage of Omaha certainly knows his stuff well…
Dr. Güntürk Üstün
Actually, it is the “Oracle of Omaha.”
Perhaps the ol’ Oracle is perceptive enough to realize enough is enough and we don’t need another mega-meltdown(s) sending repercussions from coast to coast and border to border. Better to concentrate upon more efficiently and responsively managing what they have rather than fostering a feather in the cap of some CEO.
Ancora doesnt like to hear this. Watch them go to CN with their hat in hand crying for a merger. Maybe the Oracle just put Ancora out of the railroad asset stripping business.
Now that would be a wonderful outcome!
Closer ties and better coordination could lead to all kinds of changes that could set them up to make a merger easier, especially once they have a chance to see how it plays out if and when yellow becomes the new black.
Like I said… and as Gomer Pyle would say, “Surprise, surprise surprise…”
Not really surprised by this. It definitely wouldn’t be in BNSF’s interest to merge with CSX until BNSF has worked out additional trackage rights agreements with UP/NS.
I think the idea of a closer relationship between CSX and BNSF is one way to put Ancora on notice.
There is little doubt Ancora would like nothing better than to get Hinrichs out of the way and install Boychuk. However Boychuk is not well liked in the industry and very likely BNSF brass wants nothing to do with him. In other words BNSF won’t merge with CSX if Boychuk is running the show there.
That was and has been my point. A merger would cramp Warren Buffet’s style and operation management, He gets the same benefit without the government (STB. FRA, etc;) telling him what to do or giving away somethings he prizes (Facility and the like) to others for nothing… In a way, you are right, THIS IS NO SURPRISE AT ALL…
Keep in mind that Buffett is retiring.
Well, it’s a perfectly normal decision for a 95-year-old man…
Dr. Güntürk Üstün
And Ancora can go suck an egg!
The Oracle has spoken.