The cash-and-shares deal by Mr Buffett's Berkshire Hathaway, which already has a 22.6 per cent stake in BNSF, caps a long search by the legendary investor for an "elephant" deal to deploy his vast cash pile.

Old-economy
The takeover deepens Mr Buffett's exposure to the US-focused old-economy sectors that have long been the backbone of his empire alongside financial services, and underlines his confidence in a rebound in domestic growth. "It is a very solid business . . . that will do well if the economy does well and I believe the economy will do well," Mr Buffett told the Financial Times.

The deal values Texas-based BNSF at $44bn, including $10bn of debt and the value of the stake Berkshire had accumulated since 2007.

After a few overseas purchases prior to the crisis, Mr Buffett refocused on the US during the turmoil, buying into then-ailing corporate icons like General Electric and Goldman Sachs and urging Americans to purchase shares.

Coup de Grâce
Doug Kass, general partner at the hedge fund Seabreeze Partners Management and a former Berkshire shareholder, said the BNSF takeover could be a defining moment for the 79-year-old investor. "Considering the size, this could be Mr Buffett's coup de grâce on the deal world. And it's going to take a while to absorb it. I think it's his last meaningful deal," he said.

Mr Buffett said that he would steer clear of large deals for some time but added that, even after paying for BNSF, Berkshire would have more than $20bn in cash for smaller transactions. "There is something left in the piggy bank," he said.

The takeover of BNSF, a railroad operator with more than $18bn in top-line revenues whose origins date back to 1849, dwarfs previous deals by Berkshire, the textile group that Mr Buffett turned into an insurance-to-confectionery conglomerate.

Until Tuesday, Mr Buffett's biggest deal was the $18bn acquisition of General Re, the reinsurance group, in 1998.

Stability
Bankers said the BNSF take-over was typical of Mr Buffett: a deal at a low point in the economic cycle for a group with few rivals in a sector set to benefit from long-term trends such as rising oil prices and stricter environmental standards.

"More than 70 per cent of Berkshire's earnings are in insurance and utilities. What's significant about that? Stability. What's significant about BNSF earnings? Stability," said Roger Altman, founder and chairman of Evercore Partners, which advised BNSF together with Goldman Sachs.

Under the terms of the deal, scheduled to be completed in the first quarter of 2010, Berkshire will pay $100 a share for the 77.4 per cent of BNSF it does not own, a premium of more than 30 per cent on Monday's closing share price.

Berkshire expects to pay about 60 per cent in cash and 40 per cent in shares. Final percentages will depend on whether BNSF's investors choose to receive cash or shares.

BNSF shares closed 27.51 per cent higher at $97 in New York. Berkshire class A shares were 1.7 per cent higher at $100,450.

After reporting a $1.5bn loss in the first three months of the year - its first period in the red since 2001 - Berkshire recorded a $3.3bn profit in the second quarter as investment gains offset a fall in the earnings of its sprawling portfolio of companies.

The Omaha, Nebraska-based holding company will report its third-quarter results this Friday.

Berkshire's class A shares rose 1.7 per cent to $100,450 on Tuesday and have climbed 4 per cent this year. The stock dropped 32 per cent in 2008.

The value of Berkshire's warrants in Goldman has surged about 50 per cent since Mr Buffett reached its deal with the Wall Street firm in September 2008. Mr Buffett's GE warrants remain under water.

Copyright The Financial Times Limited 2009.