24/7 Wall St 2007 Break Up Values Burlington Northern $100 (Current Price $79)

By Ryan Barnes. Edited By Douglas A. McIntyre

Burlington Northern is the largest U.S. freight carrier, operating on nearly 34,000 miles of track in the U.S. and Canada.  While they have various assets in the form of logistics centers, maintenance facilities, and freight cars, the real key to the value of the company is the track itself – 24,000 miles of it owned by the company itself.  Consider the simple fact that over 75% of the Capex budget goes towards just maintaining their existing lines; everything is geared towards making the track as quick, efficient, and safe as possible.

Railroads are a decidedly non-sexy industry, with low margins, volatile earnings, and just awful debt loads.  They have performed well of late because of constrained supply of carriers and high fuel costs which have priced trucking out of many supply lines.  If BNI were to be broken up, it would be all about the track, and our goal in this analysis is to estimate the value of that 24,000 miles of company owned track.  Based on values per track mile in previous deals, Burlington could pare off their track for just over $15 billion. 

That leaves us with the rest of the balance sheet, which includes a hefty $27 billion in PP&E, but also $15b in debt and deferred tax liabilities which would have to be paid upon asset liquidation.  Netting out all these items brings the total breakup value to a nice round $100/share.  Keep in mind that full-scale liquidation is highly unlikely given the supply constraints within the railroad industry itself.

Ryan Barnes

Ryan Barnes has over 10 years’ experience in portfolio management and investment research, covering equities, fixed income, and derivative products. Ryan spent the past 5 years working as an institutional trader & manager for high-net worth investors, working with Merrill Lynch, Charles Schwab, Morgan Stanley, and many others.  Ryan is currently working as a writer and financial modeling consultant on hedging and capital appreciation strategies, and does not own securities in the companies being covered.

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