The Odds of a Berkshire Hathaway Bid for CSX Are Rising. How Buffett Might Try to Pull It Off.

Merging with CSX would give Berkshire Hathaway’s BNSF railroad coast-to-coast scope. (Dreamstime)

The odds that Berkshire Hathaway makes a bid for CSX have risen in the past 24 hours.

Union Pacific said earlier Thursday that it’s in “advanced discussions” with Norfolk Southern on a potential merger that would create a transcontinental railroad.

CSX’s CEO Joseph Hinrichs stated on the company’s earnings conference call late Wednesday that the company is “absolutely focused on delivering shareholder value” and that the company is “open to anything that can help us achieve that objective.”

It’s now up to Berkshire, which owns the Burlington Northern Santa Fe railroad, to decide if it wants to try to purchase CSX, which would create a second transcontinental railroad. Union Pacific and BNSF dominate freight traffic West of the Mississippi River and Norfolk Southern and CSX in the East.

If Berkshire does move, it’s unlikely to act in a way that most companies behave in merger situations.

Based on his prior behavior and public statements, Berkshire CEO Warren Buffett refuses to use investment bankers—unlike most companies—or get involved in bidding wars. He prefers to make take-it-or-leave cash offers to corporate boards. That’s what happened with Alleghany, the insurer that Berkshire bought in 2022. Buffett thinks investment bankers are expensive and generally useless.

When Alleghany told Berkshire that it wouldn’t evaluate Berkshire’s offer without consulting its bankers at Goldman Sachs, Buffett cut the price that Berkshire would pay for Alleghany by over $25 million to account for the fee.

Buffett also doesn’t like deal terms to leak publicly and he is willing to scotch a deal if that happens.

So if Berkshire does make a move on CSX, look for an all-cash offer that includes a go-shop period that would allow the railroad to consider other offers. That’s what happened with Alleghany.

A spokeswoman for Berkshire executive Greg Abel, who heads the company’s non-insurance operations, including BNSF, said he declines to comment.

A Berkshire deal for CSX likely would be well received by Berkshire holders who have been waiting for Buffett to execute what he calls an elephant-sized deal that would absorb a chunk of its cash. And buying CSX would have strategic benefits for BNSF, one of Berkshire’s most important units.

Berkshire has the cash if it wants to buy CSX, which could cost over $80 billion. Berkshire is sitting on over $300 billion of cash including about $90 billion at its holding company that doesn’t carry any potential regulatory restriction on usage that occur with the larger amount of cash at its insurance units. Buffett generally hates to use Berkshire stock as a currency for a deal. He views every share as precious.

Wall Street seems to be taking a wait-and-see approach to potential rail combinations because no deal has been announced and any deal likely would draw lengthy antitrust and regulatory scrutiny.

Norfolk Southern shares were down 0.7% Thursday to $278, but are up about 5% since The Wall Street Journal reported last Thursday that the company was in preliminary talks with Union Pacific. CSX shares gained 0.1% Thursday to $35.01 while Union Pacific stock fell 4.5% to $220.50 Thursday.

Union Pacific stock likely is under pressure in part because investors fear it may have to pay up to get Norfolk Southern and issue a sizable amount of equity in any transaction.

This isn’t the kind of deal environment, however, that Buffett likes. CFRA analyst Cathy Seifert said last week that Berkshire doesn’t like to “chase a deal.” Buffett prefers to act when he wants, but the problem for Berkshire is that if Union Pacific reaches a deal with Norfolk Southern, Berkshire may need to act quickly to get both transactions reviewed simultaneously by regulators.

CSX also wouldn’t come cheaply. Its shares now trade for about 20 times projected 2026 earnings. Assume a 25% premium and Berkshire would pay about 25 times earnings—above the multiple of around 15 that it paid when it purchased BNSF in 2010. That would cost about $81 billion.

Even with that premium, a deal would be about 8% accretive to Berkshire’s 2026 earnings assuming cost and other synergies, according to UBS analyst Brian Meredith, who follows Berkshire and consulted with the firm’s rail analysts for the calculation.

A Berkshire deal for CSX is looking like a distinct possibility, and any deal would show the distinctive way that Buffett operates.

Write to Andrew Bary at andrew.bary@barrons.com