Burlington Northern: Warren Buffett Synthetic Stake Addition (BNI, BRK-A)

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There was an interesting Form 4 filed today with the SEC.  Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A) has artificially added to his holdings of Burlington Northern Santa Fe Corp. (NYSE: BNI).  On October 8, Berkshire’s National Indemnity Co. unit sold put options in the rail giant in a bet that shares wouldn’t fall further or that he’d be willing to add to his position.

On that date, Buffett sold $80.00 strike put options with a December expiration for 1,190,476shares at a price of $7.0336 (per contract) and sold put options with a December expiration for761,111 shares with a $77.00 strike for $5.7804 (per contract).

As of June 30, 2008, Berkshire Hathaway beneficially owned more than63.7 million shares of the rail transport giant or about 18.5% of theentire company.  By selling put options at $84.49 today, he’s basicallysaying that he doesn’t believe the stock will fall that much or thathe’s willing to pre-buy shares if the value does drop to $80 or $77 byDecember.  BNI’s 52-week trading range is $74.20 to $114.58.

See Buffett’s full holdings before they change this week.

Jon C. Ogg
October 13, 2008