Berkshire Hathaway May Have Stepped Up Its Role in Potential Railroad Mergers

The rail unit of Warren Buffett’s firm reportedly hired Goldman as a financial advisor after Union Pacific considers a deal for Norfolk Southern. (Al Drago/Bloomberg)

The drama involving potential mergers of the country’s biggest railroads has been heightened with a Reuters report late Monday that Burlington Northern Santa Fe has hired Goldman Sachs as a financial advisor.

That follows an article in The Wall Street Journal last Thursday that Union Pacific has made preliminary overtures to Norfolk Southern for a possible deal that would create a transcontinental railroad.

The situation now is that there are two major railroads operating west of the Mississippi River: Union Pacific and BNSF, which was purchased by Berkshire Hathaway in 2010. There are two big railroad companies in the East, Norfolk Southern and CSX .

It has long been assumed on Wall Street that the creation of a transcontinental railroad could be too difficult to pull off from a regulatory and antitrust standpoint, but Union Pacific may want to try to test the Trump administration’s tolerance for a deal.

Barron’s wrote Thursday following the WSJ report that Berkshire could consider a bid for CSX if Union Pacific, BNSF’s chief rival, makes an offer for Norfolk Southern. We wrote that such a Berkshire move would be a defensive maneuver so Union Pacific wouldn’t be the only railroad with a transcontinental network.

Berkshire didn’t respond to Barron’s request for comment.

A Berkshire bid for CSX, which could cost $80 billion, would be an elephant-sized acquisition that Berkshire CEO Warren Buffett has long sought.

Berkshire’s class B stock is up 1.3% Tuesday to $480.53, while CSX stock is 1.6% higher at $34.90. Union Pacific stock is up 1.1% to $228.32, and shares of Norfolk Southern have gained 1.3% to $280.30.

After the Reuters report, CNBC reported that Buffett told it that Goldman has not spoken to him or Berkshire executive Greg Abel. The latter heads the company’s non-insurance businesses including BNSF, and is due to succeed Buffett as CEO at the start of 2026. That cast some doubt on the Reuters report.

Whether Berkshire gets involved in a potential rail-merger scrum will be interesting to watch.

While there are strategic reasons for Berkshire to buy an eastern railroad if Union Pacific does, such a deal wouldn’t come cheaply with CSX now trading for about 20 times forward earnings before any takeover premium. Buffett has a value-investing bent and generally likes to pay no more than 15 times earnings for acquisitions and equity investments. Berkshire would have no problem funding such a deal given that it’s sitting on over $300 billion in cash.

Buffett, 94, also has maintained a policy of not getting into bidding wars. It would be tough for Berkshire to buy a major railroad without having to bid against other companies such as Union Pacific or Canadian National Railway. Buffett generally makes take-it-or-leave-it offers to companies.

It also would be unusual for Berkshire to use an investment banker to evaluate and advise on potential mergers. Buffett views most investment bankers as expensive and useless. Berkshire regularly does acquisitions without using an investment banker—a rarity among big companies. Buffett is comfortable evaluating a deal on his own.

That was the case with the $34 billion BNSF deal in 2010, and Berkshire’s $11.6 billion purchase of insurer Alleghany in 2022. In neither case did Berkshire use a banker.

In fact, Buffett cut the price of the Alleghany offer by nearly $2 a share to $848.02 from his original offer of $850 because Alleghany insisted on hiring an investment banker, and Buffett deducted that estimated fee of more than $25 million from the deal price. Alleghany’s board accepted the price of $848.02 despite some misgivings.

Buffett may not want to get involved in a railroad bidding contest but he may need to do so to protect the position of one of Berkshire’s biggest subsidiaries.

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