The American rail system is back in the spotlight - now that billionaire investor Warren Buffett's Berkshire Hathaway is buying out Burlington Northern Santa Fe in a deal valuing the railroad at US$34 billion.
The deal is Berkshire's biggest ever, placing a 31 percent premium on the company- and making a big statement about the future of the US economy.
"Its a huge bet on the US economy improving and improving over the long run. So you don't make a bet of this magnitude unless you think the next 3 years are gonna be better not worse for the US economy," says Art Hogan, Chief Market Analyst, Jefferies and Company.
Burlington is the top US railroad by revenue, and said in September that it was seeing improvement in consumer related markets.
The railroad industry has been investing in new technology and improving efficiencies, trying to prove their method of transportation is cheaper, cleaner and more efficient than shipping goods by truck.
That could be key as the focus on saving energy continues to grow:
Buffet is also known for his shrewd timing- picking undervalued companies at just the right time:
"Remember back last fall when he made some large investments in several companies American Express and Goldman Sachs and certainly two of them and he's done very well on both fronts there. I think he is picking his spots, finding deep value here and making a statement about corporate America that there is still some value, even though we've seen the markets move significantly off their lows," says Hogan.
Analysts say the deal assumes a large part of America's future energy needs will be fed by coal-fired power plants, with that coal carried on Burlington Northern's rails.
Reuters