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November 3, 2009 6:01 PM

Three Firms Win Roles on Berkshire's Largest Deal Ever

Posted by Brian Baxter

Berkshire Hathaway announced on Monday that it's acquiring 77 percent of railroad operator Burlington Northern Santa Fe for $34 billion in cash and stock. Berkshire, the holding company for the assets of Warren Buffett, the world's second-richest man, already owns the other 23 percent.

Cravath, Swaine & Moore, Munger, Tolles & Olson, and Sullivan & Cromwell worked on the deal--the largest in Berkshire's history.

Advising BNSF were Cravath corporate partners Scott Barshay, George Zobitz, and Damien Zoubek, head of executive compensation and benefits Eric Hilfers, tax partner Michael Schler, antitrust partner Elizabeth Grayer, and associates Joseph Zavaglia, Jonathan Coleman, Ryan Gorsche, Lori Goodman, Matthew Cantor, Christopher Fargo, and Kenneth Gerold. Barshay did not respond to a request for comment.

Berkshire turned to Munger Tolles corporate partner Robert Denham, the former CEO of Salomon Inc., who has a long history with the Oracle of Omaha. Most recently, Denham advised Buffett last fall when he invested $5 billion in Goldman Sachs, helping the investment bank survive the market maelstrom following the bankruptcy of Lehman Brothers. Denham was traveling on Tuesday and not immediately available for comment.

Munger Tolles has long been the go-to firm for Berkshire. Founding partner Charles Munger, who is no longer affiliated with the firm, is a Berkshire vice chairman and longtime confidant of Buffett. Besides Denham, the Munger Tolles team also included corporate partners Mary Ann Todd and Brett Rodda, tax partners Stephen Rose and David Goldman, and associates Kimberly Chi and Patrick Anderson.

Bloomberg reports that the BNSF deal is a culmination of efforts by Buffett and Munger to find big buys for Berkshire, which has been flush with cash in recent years and interested in increasing annual earnings through a high-profile acquisition.

The deal came together in only ten days, Bloomberg reports, with Buffett and BNSF CEO Matthew Rose hashing out the details in Fort Worth. Under the terms, Berkshire will pay $16 billion in cash--$8 billion from company coffers and $8 billion borrowed from banks--for the rest of BNSF.

The remaining 40 percent of the acquisition is priced in stock, with Berkshire splitting its class B shares 50-to-1. Including $10 billion in BNSF debt, the total value of the transaction is $44 billion. Bloomberg reports that a low breakup fee of $264 million signals Buffett's confidence in Berkshire's takeover.

Sullivan & Cromwell advised BNSF's financial advisers. M&A partner Stephen Kotran advised Goldman Sachs and M&A partner George Sampas advised Evercore Partners, which BNSF hired as second financial adviser because of Berkshire's $5 billion equity stake in Goldman.

Buffett hopes the transaction will do more than just add to Berkshire's bottom line. "It's an all-in wager on the economic future of the United States," he said in a statement announcing the acquisition. "I love these bets."

Considering many investors believe his words to be the gospel, Buffett should know. The deal is expected to be finalized by the first quarter of next year pending shareholder approval and an antitrust review by the Justice Department.

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