Is Warren Buffett's $347 Billion Cash Buying Railroads? Here's What The Oracle Of Omaha Said

Legendary investor Warren Buffett and his conglomerate Berkshire Hathaway Inc (NYSE:BRK)(NYSE:BRK) have made more than 50 acquisitions since 1970. A new report suggests that an acquisition in the railroad sector could be on the horizon for Buffett and Berkshire.

What Happened: One of the largest acquisitions ever made by Berkshire Hathaway was the company’s acquisition of the remaining stake it did not own in BNSF Railway in 2009.

Buffett began investing in BNSF in 2007 and, years later, announced plans to acquire the remaining 77.4% he didn't own for $100 per share. The deal valued BNSF at $44 billion, including $10 billion in outstanding debt.

A new report from Semafor states that BNSF is collaborating with Goldman Sachs to explore another acquisition in the railroad sector.

The report did not say whether it's Norfolk Southern Corp (NYSE:NSC) or CSX Corporation (NASDAQ:CSX) that Berkshire is most interested in.

Semafor's report comes as The Wall Street Journal recently reported that Union Pacific Corp (NYSE:UNP) was exploring a deal to acquire Norfolk Southern. The combination would create the first east coast to west coast railroad for the United States and could increase competition with BNSF.

Goldman Sachs was the broker that helped facilitate the Canadian Pacific and Kansas City Southern merger four years ago, which was the sector's last major merger and resulted in the creation of Canadian Pacific Kansas City (NYSE:CP).

Buffett shut down the report that Berkshire Hathaway was working with Goldman Sachs on a railroad takeover. Buffett told CNBC that Goldman Sachs has not spoken to him or his Berkshire CEO heir Greg Abel about a railroad deal.

Buffett also said that Berkshire does not traditionally seek advice from external bankers like Goldman Sachs on deals.

Read Also: Warren Buffett Investment Success: 3 Simple Rules To Copy Oracle Of Omaha

Why It's Important: Buffett ruled out working with Goldman Sachs, but stopped short of denying that BNSF was considering any railroad acquisitions.

Berkshire has a cash balance of $347 billion that could make swallowing up a smaller railroad an easy play at the moment. Norfolk Southern has a market capitalization of $60 billion, while CSX is valued at $65 billion.

As Benzinga previously shared, Buffett's acquisition of BNSF was somewhat criticized at the time for the large purchase price. BNSF pays out dividends to Berkshire Hathaway beyond what it needs for general operations.

From 2010 to 2020, Berkshire Hathaway collected over $50 billion in dividends from BNSF, more than the total it paid for the company outright.

Buffett once called BNSF the second most valuable asset for Berkshire Hathaway.

As Semafor reports, one reason why Berkshire may not be adding another railroad company. Berkshire has traditionally acquired best-in-class businesses and then left them alone without further acquisitions in the same sector.

Berkshire has added more assets to the Berkshire Energy portfolio over the years, which is the unit overseen by Abel. With Abel, the new incoming CEO, both he and Buffett would likely need to be on the same page regarding the future growth of railroads.

Without BNSF bidding there is a chance that other railroads could merge and create a larger national player. A merger in the sector could also prove to be a test of how far consolidation in the sector can go under the Trump administration.

• You may not be a billionaire like Warren Buffett, but you can uncover hidden gems in the stock market using our proprietary data and pattern recognition — check out five stocks flying under the radar that deserve your attention.

Image created using artificial intelligence via Midjourney.