{"id":321662,"date":"2010-02-15T02:35:00","date_gmt":"2010-02-15T07:35:00","guid":{"rendered":"tag:blogger.com,1999:blog-3087194156628161158.post-3294144084427805340"},"modified":"2010-02-15T02:38:08","modified_gmt":"2010-02-15T07:38:08","slug":"financial-times-the-real-deal","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/321662","title":{"rendered":"FINANCIAL TIMES: The Real Deal"},"content":{"rendered":"<p><!-- AddThis Button BEGIN -->By Lina Saigol <\/p>\n<p>Published: February 15 2010 02:00 | Last updated: February 15 2010 02:00<\/p>\n<p><script type=\"text\/javascript\" language=\"javascript\"> function floatContent(){var paraNum = \"3\" paraNum = paraNum - 1;var tb = document.getElementById('floating-con');var nl = document.getElementById('floating-target');if(tb.getElementsByTagName(\"div\").length> 0){if (nl.getElementsByTagName(\"p\").length>= paraNum){nl.insertBefore(tb,nl.getElementsByTagName(\"p\")[paraNum]);}else {if (nl.getElementsByTagName(\"p\").length == 3){nl.insertBefore(tb,nl.getElementsByTagName(\"p\")[2]);}else {nl.insertBefore(tb,nl.getElementsByTagName(\"p\")[0]);}}}}<\/script><\/p>\n<p>Hedge funds have always liked playing with train sets. After all, the genesis of many hedge fund strategies was the reorganisation of US railways in the 1930s.<\/p>\n<p>Then there was the &#8220;Burlington Arbitrage&#8221; of 1988. When Burlington Northern Railroad Company spun off its energy and lumber group, Burlington Resources, arbs simultaneously bought one stock while selling short the other.<\/p>\n<p>Now, the arbs are playing the $26bn (\u00a316.5bn) takeover of Burlington Northern Santa Fe by Warren Buffett&#8217;s Berkshire Hathaway.<\/p>\n<p>It&#8217;s one of the biggest opportunities in decades for index arbitrage.<\/p>\n<p>Under the terms of the deal, Berkshire is buying Burlington with $10.5bn in Berkshire stock and $15.8bn in cash.<\/p>\n<p>Crucially, however, the stock portion will come from Berkshire&#8217;s existing B-class shares which Mr Buffett split 50-for-1.<\/p>\n<p>The minute the deal was announced in November, arbs started betting that Berkshire Hathaway&#8217;s stock would rise. This was because the newly split B-class shares became eligible for inclusion in the S&amp;P 500 index.<\/p>\n<p>By rights, with a market capitalisation of $170bn, Berkshire should always have been in the index, but, based on its tiny freefloat, S&amp;P had long reasoned that the company was too illiquid to include.<\/p>\n<p>The split changed that by lowering the price of the Berkshire shares and opening it to a wider investor base.<\/p>\n<p>The arbs were quick to realise the significance of the inclusion: unlike most new index entrants who enter at the bottom, Berkshire would go straight in as the 19th largest company in the S&amp;P 500.<\/p>\n<p>That would force index funds tracking the S&amp;P 500 to acquire shares in Berkshire on a large scale, potentially driving a big increase in its share price.<\/p>\n<p>Since the stock split was approved in late January, the expectation of such a situation has seen Berkshire&#8217;s shares rise 15 per cent, while the S&amp;P 500 is down 5.45 per cent during the same period.<\/p>\n<p>For arbitrageurs who have managed to hedge the downside by shorting the S&amp;P 500, the deal will pay handsomely.<\/p>\n<p>For Mr Buffett, the benefits are even better. The rising share price of Berkshire means he will pay far less for Burlington than originally expected.<\/p>\n<p>Now that&#8217;s class M&amp;A.<\/p>\n<p class=\"textBodyBlack\"><a name=\"comments\"><span style=\"font-weight: bold;\">Share Investor Links<\/span><\/a><a name=\"comments\"><\/a><\/p>\n<p><a href=\"http:\/\/www.shareinvestorblog.com\/\">Share Investor Blog<\/a> &#8211; Stockmarket &amp; Business commentary<br \/><a href=\"http:\/\/shareinvestornz.blogspot.com\/2007\/02\/new-zealand-business-news.html\">Share Investor New Zealand Business News<\/a>&#8211; Get more business news<br \/>Discuss this topic @<a href=\"http:\/\/www.shareinvestorforum.com\/\"> Share Investor Forum<\/a> &#8211; <a href=\"http:\/\/shareinvestorforum.com\/ucp.php?mode=register&amp;sid=450a61250472e03fa25c205c9c1723f1\"><strong>Register<strong><\/strong><\/strong><\/a> free<br \/><a href=\"http:\/\/www.currency-market.blogspot.com\/\">Share Investor&#8217;s Daily Forex Updates<\/a><\/p>\n<p><span style=\"font-weight: bold;\">Recommended Amazon Reading<\/span><\/p>\n<table id=\"searchResults\" cellspacing=\"0\">\n<tbody>\n<tr class=\"clsOdd\">\n<td class=\"tdimage\"><a href=\"http:\/\/astore.amazon.com\/shareinvestorbookstore-20\/detail\/0060555661\"><img decoding=\"async\" src=\"http:\/\/ecx.images-amazon.com\/images\/I\/41rcIrKhYiL._SL75_.jpg\" alt=\"The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)\" \/><\/a><\/td>\n<td class=\"tddescription\"><a href=\"http:\/\/astore.amazon.com\/shareinvestorbookstore-20\/detail\/0060555661\">The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)<\/a> by <span class=\"by\">Benjamin Graham<\/span><br \/>Buy new:        $14.95       \/ Used from:        $11.44<br \/><span class=\"availability\">Usually ships in 24 hours<\/span><\/td>\n<\/tr>\n<tr class=\"clsEven\">\n<td class=\"tdimage\"><a href=\"http:\/\/astore.amazon.com\/shareinvestorbookstore-20\/detail\/0471743674\"><img decoding=\"async\" src=\"http:\/\/ecx.images-amazon.com\/images\/I\/51hqcX1xLtL._SL75_.jpg\" alt=\"The Warren Buffett Way, Second Edition\" \/><\/a><\/td>\n<td class=\"tddescription\"><a href=\"http:\/\/astore.amazon.com\/shareinvestorbookstore-20\/detail\/0471743674\">The Warren Buffett Way, Second Edition<\/a> by <span class=\"by\">Robert G. 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After all, the genesis of many hedge fund strategies was the reorganisation of US railways in the 1930s. Then there was the &#8220;Burlington Arbitrage&#8221; of 1988. When Burlington Northern Railroad Company [&hellip;]<\/p>\n","protected":false},"author":833,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-321662","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/321662","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/833"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=321662"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/321662\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=321662"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=321662"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=321662"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}