By Andrew Frye and Jamie McGee <\/p>\n
Jan. 19 (Bloomberg) — Warren Buffett, who committed most of his Berkshire Hathaway Inc. shares to charity, is speeding the pace at which he reduces his ownership stake with the $26 billion takeover of railroad Burlington Northern Santa Fe Corp.<\/p>\n
The issuance of Berkshire shares in support of the buyout would reduce Buffett\u2019s stake in his firm stocks to about 24 percent. That compares with stakes of 40 percent in 1996 and 32 percent in 2006, the year he began handing over shares as part of the largest charitable donation in history, according to regulatory filings.<\/p>\n
Buffett, who said the rail purchase will produce income for \u201cthe next century,\u201d is positioning Berkshire to profit from his investments after his reign as primary shareholder and chairman comes to a close. He\u2019s diluted his stake in the past to aid Berkshire\u2019s growth, most notably with the 1998 stock-funded takeover of insurer General Re. The Burlington deal puts much of the company\u2019s excess cash to work, said investor David Carr.<\/p>\n
\u201cThe essence of Berkshire now on an ongoing basis is the culture,\u201d said Carr, who manages Berkshire shares as chief investment officer at Oak Value Capital Management Inc. in Chapel Hill, North Carolina. The Burlington deal \u201cactually strengthens the culture and fortifies it\u201d by adding a business that will prosper when the U.S. economy grows and has a durable long-term advantage, he said.<\/p>\n
Berkshire investors will vote tomorrow on a stock split tied to the deal, and Burlington Northern shareholders will be asked to approve the transaction on Feb. 11. Buffett plans to issue about $10 billion of Berkshire stock to fund the transaction. He\u2019s tapping Wells Fargo & Co. and JPMorgan Chase & Co. for an $8 billion loan, with the remaining $8 billion coming from Berkshire\u2019s cash hoard.<\/p>\n
New Shareholders<\/p>\n
The acquisition will bring new rail investors to Berkshire while diluting the stake of the existing shareholders, who Buffett has praised as the best in the world. His 33 percent holding of Berkshire\u2019s Class A stock is 10 times greater than the next-biggest investor and will allow him to maintain control of the firm even as his stake declines. Including the Class B shares, he reported owning 26 percent of Berkshire on Nov. 13.<\/p>\n
Buffett, Berkshire\u2019s chief executive officer, also enjoys the support of top investors such as Vice Chairman Charlie Munger and the charity run by Microsoft Corp. co-founder Bill Gates. Smaller shareholders respect Buffett, the second-richest American behind Gates, for his investing success. In May, about 35,000 people filled Omaha\u2019s Qwest Center arena and overflow rooms to hear Buffett speak at Berkshire\u2019s annual meeting.<\/p>\n
\u2018The Same Church\u2019<\/p>\n
\u201cWe belong to the same church,\u201d said Mohnish Pabrai, founder of Irvine, California-based Pabrai Investment Funds, which owns Berkshire shares. \u201cBetween Buffett, the Gates Foundation and all the friends of Warren Buffett — like me, for example — we will always vote our shares\u201d the way Buffett wants, he said.<\/p>\n
Buffett, 79, built Berkshire over four decades from a failing maker of men\u2019s suit linings into a $150 billion company through successful stock picks and dozens of takeovers. Buffett doesn\u2019t pay dividends or buy back stock, preferring to use Berkshire\u2019s earnings for acquisitions and investments. The company\u2019s Class A stock has surged more than 30-fold since 1987 to $97,500 as of Jan. 15.<\/p>\n
Buffett is asking shareholders to approve a 50-for-1 split of the Class B shares tomorrow. The move would reduce the number of partial shares Berkshire would need to issue to Burlington Northern investors. Class B shares ended last week at $3,247 in New York Stock Exchange composite trading.<\/p>\n
Gates Foundation<\/p>\n
Buffett owns 350,000 shares — about a third — of Berkshire\u2019s Class A stock, which trades for about 30 times the Class B shares and gives investors 200 times the voting power. He also owned about 1.5 million shares of the Class B stock, or 10 percent, as of November. Buffett didn\u2019t respond to a request for comment left with assistant Debbie Bosanek.<\/p>\n
In 2006, Buffett pledged 85 percent of his Berkshire holdings, a commitment valued at about $37 billion at the time, to the Bill & Melinda Gates Foundation and charities of four of his family members. The Gates donation of 10 million Class B shares will be made in annual installments, and continue after Buffett\u2019s death. The charity, established by Gates and his wife, funds projects that combat disease and global poverty.<\/p>\n
Buffett has said he\u2019ll convert his Class A stock into Class B as needed to fund the commitment to the Gates Foundation, diluting the voting power of the shares before handing them over. He started with a donation of 500,000 shares and arranged for 5 percent of the remaining commitment to be handed out each year.<\/p>\n
Replacing Buffett<\/p>\n
Buffett has addressed investor concerns about his eventual departure in his annual letters, saying that he\u2019ll be replaced by at least three people: a CEO from a list he and the board of directors keep, at least one person to manage investments, and his son Howard Buffett, who has been picked to be the next chairman.<\/p>\n
\u201cIt\u2019s the most important issue there is,\u201d Buffett said in an interview with Bloomberg Television at Berkshire\u2019s headquarters in Omaha, Nebraska last year. \u201cThere\u2019s nothing more important. Nobody knows on any given day where I\u2019ll be the next day.\u201d<\/p>\n
The purchase of Fort Worth, Texas-based Burlington Northern is an \u201call-in wager\u201d on the U.S. economy and will produce returns for Berkshire for the next century, Buffett has said. The deal is the biggest of Buffett\u2019s career, and will pay off for shareholders over time, said Frank Betz, partner at Warren, New Jersey-based Carret Zane Capital Management.<\/p>\n
The $18 billion all-stock takeover of Stamford, Connecticut-based General Re in 1998 diluted what had been a 40 percent stake two years before. The 26 percent economic interest he reported in November is worth almost $40 billion.<\/p>\n
\u201cHe\u2019s still got enough,\u201d Betz said.<\/p>\n
–Editors: Erik Holm, Dan Reichl<\/p>\n
Share Investor Links<\/span><\/a><\/a><\/p>\n Share Investor Blog<\/a> – Stockmarket & Business commentary Recommended Amazon Reading<\/span><\/p>\n
Share Investor New Zealand Business News<\/a>– Get more business news
Discuss this topic @ Share Investor Forum<\/a> – Register<\/strong><\/strong><\/a> free
Share Investor’s Daily Forex Updates<\/a><\/p>\n
![\"The](\"http:\/\/ecx.images-amazon.com\/images\/I\/315%2BfrL4YuL._SL75_.jpg\")
<\/a><\/td>\n![\"Warren](\"http:\/\/ecx.images-amazon.com\/images\/I\/41ZkoqL3OTL._SL75_.jpg\")
<\/a><\/td>\n