business

Warren Buffett made his biggest bet in the Internet age on the growth industry of the 19th century.

In what he called an "all-in wager" on the future of the U.S. economy, Buffett's Berkshire Hathaway is paying $34 billion to buy the Burlington Northern Santa Fe (BNSF), the nation's second-largest railroad.

The purchase of BNSF, which traces its roots to the St. Paul-based railroad empire of 19th-century tycoon James J. Hill, also expands Buffett's Minnesota presence. Berkshire Hathaway already owns HomeServices of America Inc., the parent company of Edina Realty, and Dairy Queen International Inc. of Edina.

Although BNSF's payroll in Minnesota has been much reduced since the golden age of railroads, it still has 800 Twin Cities employees and its trains remain a familiar sight across Minnesota.

Buffett called the deal, the biggest ever for his company, "a huge bet and one that I'm very happy to make, but it's not a bet on next month or next year. We're going to own it forever."

Analysts say Buffett is planting his feet in an industry poised to grow as the economy gets back to solid ground.

Berkshire Hathaway, which already owns about 22 percent of BNSF, will pay $100 a share in cash and stock for the rest of the company. That was a 31.5 percent premium above BNSF's Monday closing price.

BNSF's predecessor, the Burlington Northern, was born and based in Minnesota as a result of the 1970 merger of Hill's Great Northern with the Northern Pacific Railway and the Chicago, Burlington & Quincy Railroad.

The Burlington Northern moved its headquarters to Fort Worth, Texas, in 1984, and in 1996 it merged with the Atchison, Topeka and Santa Fe Railway to become the BNSF.

Between 50 and 60 BNSF trains pass through the metro area every day, the company said. Longtime operations here include the Northtown railroad sorting yard in Fridley, a truck-to-railcar loading facility in St. Paul's Midway and the Nicollet Island Railroad Bridge.

Outside the Twin Cities, BNSF has employees in Willmar, Brainerd, Duluth and Detroit Lakes.

The railroad's Minnesota employment has dropped from 9,114 in 1980 to 2,000 today, a decline that mirrors a national trend that began in the late 1940s as trucks, and later airplanes, took business away from railroads. Nationally, railroad employment peaked in 1944 at 1.67 million workers, and by 2007 had dropped to 236,000.

The railroad also has been hurt by the recession.

"Our peak volume year was 2006, but by the end of 2008 the whole transportation industry had dropped off a cliff," said BNSF spokesman Steve Forsberg in Kansas City, Kan. Companywide employment dropped from 41,000 in 2007 to 37,000 today.

"But we've maintained that the long-term trend will be for rail traffic to increase significantly over the next 20 to 30 years," Forsberg said. "That's because railroads are the most fuel-efficient way to move large volumes of freight and people."

Buffett is betting that the freight industry is poised for recovery, though it hasn't shown much rebound yet. The best that most rail executives have said about volume is that it seems to have hit bottom. BNSF and other top railroads are considered a barometer of economic activity because of the breadth of goods they carry, and Buffett has said he uses weekly railroad data as a proxy for the economy's health.

"Berkshire's $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry," Buffett said in a statement.

Some analysts said it's a good bet.

Buffett is "buying at the trough -- things aren't going to get much worse. He's getting in at a good time," said Art Hatfield, an analyst with investment firm Morgan Keegan.

Berkshire's biggest acquisition before BNSF was the $16 billion stock purchase of reinsurance giant General Re announced in 1998.

Berkshire owned stock in two other major railroads -- about 1 percent of the outstanding shares of Union Pacific Corp. and less than 1 percent of Norfolk Southern Corp. -- as of June 30. Buffett started investing in railroads in 2007 but has said he realized a few years late that railroads had become an appealing investment.

The acquisition, which has been approved by the boards of both companies, is subject to approval by regulators and BNSF shareholders. The companies expect the transaction to close in the first quarter.

Staff writer Steve Alexander, the Associated Press and Wall Street Journal contributed to this report.