Ackman Doubts Buffett's BNSF Can Make Competitive Norfolk Offer

  • `The only currency they have to offer is cash,' Ackman says
  • Hedge fund manager says Harrison can help improve Norfolk

Warren Buffett will be hard-pressed to top Canadian Pacific Railway Ltd.’s bid for Norfolk Southern Corp. because the billionaire’s BNSF Railway lacks the management depth to make enough improvements at the target company, hedge fund manager Bill Ackman said.

Ackman, whose Pershing Square Capital Management is Canadian Pacific’s biggest shareholder, opened a new, personal front in the takeover effort as the Calgary-based company presented a sweetened offer. With his comments, he jabbed at BNSF Executive Chairman Matt Rose’s assertion last week that he would be open to a competing bid.

Canadian Pacific’s cash-and-stock offer envisions Chief Executive Officer Hunter Harrison moving to Norfolk Southern as CEO while the U.S. Surface Transportation Board evaluates the combination. Canadian Pacific, the country’s second-largest railroad, would be placed into a voting trust during that time.

“If you look at our deal, we’re proposing to put CP in trust and for Hunter to go run NS, where the vast majority of the value creation takes place during the operating turnaround,” Ackman said Wednesday on a conference call with Canadian Pacific executives to discuss the revised offer. “How can BNSF put in a competitive offer to that? Is Buffett going to agree to put BNSF into trust? Who’s going to leave BNSF to go run NS waiting for an approval?”

Rose’s View

Although BNSF doesn’t favor fresh dealmaking, the carrier won’t be sidelined if any occurs, Rose said last week. Mike Trevino, a BNSF spokesman, didn’t immediately respond to a request for comment on Ackman’s remarks. Buffett, who was campaigning for Hillary Clinton Wednesday at a rally in Nebraska, didn’t immediately respond to a message left with an assistant.

Buffett’s Berkshire Hathaway Inc. completed its purchase of Fort Worth, Texas-based BNSF in 2010, a transaction valued at about $34 billion that the billionaire described as a bet on the U.S. economy because of railroads’ vital role in moving freight.

The contingent-value right in CP’s latest bid adds an additional payout of as much as $3.4 billion to the bid, Canadian Pacific said. The rest of the offer was similar to last week’s revised offer of $32.86 in cash and 0.451 shares in the combined company, which valued Norfolk at about $27 billion.

Cash Hoard

Berkshire had about $66.3 billion in cash as of Sept. 30. While BNSF’s resources are not in question, the company’s willingness to top Canadian Pacific’s bid is, Ackman said.

“The only currency they have to offer is cash, because BNSF is a private company,” Ackman said. “Mr. Buffett has plenty of cash but he’s not known for overpaying.”

Ackman has challenged Buffett’s company before, including after Berkshire Vice Chairman Charles Munger said Valeant Pharmaceuticals International Inc.’s practice of acquiring rights to treatments and boosting prices was “deeply immoral.”

Ackman, who is an investor in the drug company, fought back last month by saying Munger had no business making that criticism, especially given the profits that Berkshire made from investing in Coca-Cola Co. Ackman said the soft-drink maker’s products contribute to obesity and diabetes.

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