Warren Buffett’s purchase of BNSF triggered a regulatory rate battle that could set a precedent for future railroad mergers or acquisitions.
Several shipper groups want the Surface Transportation Board to prevent BNSF from charging higher freight rates to captive shippers because of a hefty premium Buffett paid to absorb the railroad.
Takeovers usually involve paying more for a successful company than its prevailing stock price, either in a bidding contest or to head off other potential suitors. The Western Coal Transportation League says Buffett’s $34.5 billion purchase of BNSF shares included a premium of $7.6 billion that BNSF wants to build into the net investment base from which the railroad would calculate new freight rates.
The WCTL and other shippers want the STB to rule BNSF cannot count that value in its railroad cost base, arguing that rail customers should not have to eventually foot the bill for what amounts to bidding contests by railroad buyers.
BNSF says “the agency’s precedent on this subject is well-settled” and favors the railroad’s costing method, indicating the STB would have to change longstanding policy to rule against it. In fact, BNSF says if the STB moves to change treatment of acquisition premiums, the regulators would have to consider a much broader overhaul of how they calculate railroad revenues against costs.
The National Industrial Transportation League says the STB should follow other regulated industries and exclude merger premiums from the rate base in order to protect consumers.
The activist shipper lobby Consumers United for Rail Equity argues BSNF’s cost approach would “further bolster the coffers of Berkshire and Berkshire shareholders at the expense of the public.”