2016: Could there be another major railroad merger?

GREGG WARREN: Warren. Late last year we saw Canadian Pacific make a hostile bid for Norfolk Southern, a combination that would have linked Canada’s second largest carrier with one of the two largest railroads in the eastern U.S.

This move led to a largely negative reaction from not only Norfolk Southern, but from federal and state lawmakers, shippers, and other railroad operators, even though a formal evaluation process hadn’t even begun with the U.S. Surface Transportation Board. Canadian Pacific eventually backed down.

Looking back to 1999, when the Transportation Board blocked a proposed merger between BNSF and Canadian National, the attitude was that any additional mergers amongst railroads would have to be accretive to competition.

What do you think they meant by this? And if one believes that the hookup of one of the two major western railroads with one of the two eastern railroads would not alter the current landscape, where most shippers have just two choices amongst the large railroads operating in the region, and could actually generate efficiencies and cost savings that could be passed along to customers, how does a combination of someone like BNSF with Norfolk Southern or CSX not satisfy their goal?

WARREN BUFFETT: I — I think now there’s — and is Matt Rose, is he here? He can probably answer that — some of that — better than I can — certainly. He can answer all of it better than I can.

Yeah. There’s Matt. Yeah.

MATT ROSE: Yeah. So, the statement is actually right.

Back in 1999, we had a failed merger with Canadian National. New rules were put in place by our regulator, a little group called the STB, and what they said was that the public litmus test for the next merger would have to be different.

And, at that point in time we didn’t really think that a large merger was possible. And so, when Canadian Pacific announced their merger of the Norfolk Southern, when we think about our four constituencies, and those four are our customers, the labor groups, the communities in which we serve, and shareholders, which, our shareholder, of course, is BRK, we didn’t see any interest in the final round of these mergers occurring outside of the shareholder community.

And so our position was simply to say, if the rest of the shipping community believes that we ought to see this final round, that’s fine, we’ll participate, but we don’t see it occurring right now.

We do believe that when that final round occurs, there will be great efficiencies made for shippers and communities, but right now we don’t see the dynamics in place.

So, what are those dynamics? It will be as the country continues to grow in population from where we are today, 315 million people, to, say, 320, 330, 350, transportation becomes more scarce and the railroads will need to do more. And that’s really when we think the next round will occur.