Warren Buffett

Last quarter Warren Buffett (chairman and CEO of Berkshire Hathaway) sold off half it's stake in Phillips66 continuing the 5 year sale of oil and gas associated stocks. Does this renowned and successful trader know something about the future value of these stocks?

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The deciding factor may well have little to do with the value of oil and gas stocks and a lot to do with Mr. Buffett's railroad ambitions. 

Recall that Mr. Buffett purchased the Burlington Northern RR  (BNSF) for some $Q34 billion in cash.  Yet the BNSF is not a transcontinental railroad.  His trackage ends in Chicago, and his fast freight gets jammed up with the avalanche of freight flowing through Chicago, the transfer hub for some 50% of US freight.  It is now so awful that the BNSF actually leaves its own locomotives attached to its trains and lets the connecting railroad place their personnel on his trains and run them, simply because there is not enough locomotive power out there to handle all the freight and the BNSF freight just sits stalled in Chicago.  

To counter this, it would be logical for the BNSF to purchase the Norfolk Southern.  The NS would provide connection ports outside Chicago, including Memphis, Kansas CIty, Springfield, Omaha, and then would allow direct single-line access to all the East Coast ports, from Boston and Providence RI to New York and Newark Port, a huge harbor, then Norfolk, the traditional coal port, and all the remaining seaports to Jacksonville and even Mobile Bay, on the Caribbean Sea.  It would be a perfect fit. 

http://www.nscorp.com/nscorphtml/pdf/system-map.pdf

To do that, Mr. Buffett needs a vast ton of cash.  Either that, or he has to do a merger and hand over equity in the BNSF to shareholders in the NS, and I am betting that that is anathema to him.  He is a "cash buyer," so if that is the ultimate Plan, and I predict it is, then he raises cash by selling off oil properties. 

Mr.Buffett is familiar with the NS, as he previously owned a good chunk of it  (along with the Union Pacific).  So it would be logical that he plans to repurchase the NS.  

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4 minutes ago, Jan van Eck said:

The deciding factor may well have little to do with the value of oil and gas stocks and a lot to do with Mr. Buffett's railroad ambitions. 

Recall that Mr. Buffett purchased the Burlington Northern RR  (BNSF) for some $Q34 billion in cash.  Yet the BNSF is not a transcontinental railroad.  His trackage ends in Chicago, and his fast freight gets jammed up with the avalanche of freight flowing through Chicago, the transfer hub for some 50% of US freight.  It is now so awful that the BNSF actually leaves its own locomotives attached to its trains and lets the connecting railroad place their personnel on his trains and run them, simply because there is not enough locomotive power out there to handle all the freight and the BNSF freight just sits stalled in Chicago.  

To counter this, it would be logical for the BNSF to purchase the Norfolk Southern.  The NS would provide connection ports outside Chicago, including Memphis, Kansas CIty, Springfield, Omaha, and then would allow direct single-line access to all the East Coast ports, from Boston and Providence RI to New York and Newark Port, a huge harbor, then Norfolk, the traditional coal port, and all the remaining seaports to Jacksonville and even Mobile Bay, on the Caribbean Sea.  It would be a perfect fit. 

http://www.nscorp.com/nscorphtml/pdf/system-map.pdf

To do that, Mr. Buffett needs a vast ton of cash.  Either that, or he has to do a merger and hand over equity in the BNSF to shareholders in the NS, and I am betting that that is anathema to him.  He is a "cash buyer," so if that is the ultimate Plan, and I predict it is, then he raises cash by selling off oil properties. 

Mr.Buffett is familiar with the NS, as he previously owned a good chunk of it  (along with the Union Pacific).  So it would be logical that he plans to repurchase the NS.  

Did you see Berkshire Hathaway buys over the last quarter, cash to buy doesn't seem to be a problem. It's just a trend that he is slowly getting out of oil & gas.

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9 minutes ago, DA? said:

Did you see Berkshire Hathaway buys over the last quarter, cash to buy doesn't seem to be a problem. It's just a trend that he is slowly getting out of oil & gas.

Four years ago, Berkshire bought BNSF for $34 billion.  Today the market cap is about double.  The Norfolk Southern market cap is around $47 billion.  If Berkshire buys the NS, then as a true transcontinental railroad its value would double yet again.  Why should Warren Buffett share the wealth with other stockholders, when he can have it all?  To do a tender offer, he would have to offer shareholders a premium to that current stock price of $172/share.  Let us say he offers a 20% premium.  He needs $57 billion in cash.  That is a lot of money. Then he needs to spend say another $15 billion in CAPEX.  That is a lot of money. Selling off some oil properties with limited upside potential would be logical. 

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19 minutes ago, Jan van Eck said:

Four years ago, Berkshire bought BNSF for $34 billion.  Today the market cap is about double.  The Norfolk Southern market cap is around $47 billion.  If Berkshire buys the NS, then as a true transcontinental railroad its value would double yet again.  Why should Warren Buffett share the wealth with other stockholders, when he can have it all?  To do a tender offer, he would have to offer shareholders a premium to that current stock price of $172/share.  Let us say he offers a 20% premium.  He needs $57 billion in cash.  That is a lot of money. Then he needs to spend say another $15 billion in CAPEX.  That is a lot of money. Selling off some oil properties with limited upside potential would be logical. 

Then whys he buying so much other stocks then?

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