SUSIE GHARIB: Investors from around the world will head to Omaha this weekend to see Warren Buffett. The billionaire CEO of Berkshire Hathaway will headline its annual meeting answering questions on everything from the economy to Berkshire's businesses. I'll also be asking him questions as well, when I interview him on Saturday. Also on hand, Matthew Rose. He heads Burlington Northern Santa Fe. That's the giant railroad Buffett bought this year for $44 billion, the biggest deal in his career of big deals. So, why is Buffett betting on of all things, a railroad? The CEO of Burlington Northern has the answer.
Matthew Rose says it took only a 15 minute meeting with Warren Buffett to seal the deal. Rose gave Buffett a big train set, more than 6,000 locomotives and hundreds of thousands of freight cars. It's the nation's biggest hauler of coal and it's the largest transporter of freight containers. Burlington Northern got its start as the Aurora Branch railroad in Chicago in 1850. Over the next two centuries, Aurora merged with hundreds of rail lines and became known as Burlington Northern. In 1995 in a massive rail merger, it linked up with Santa Fe Pacific. Today Burlington Northern, Santa Fe railway headquartered in Fort Worth, Texas stretches into the Rockies, to California, to Seattle across to Chicago and to the Gulf of Mexico. And it could keep on growing now that Buffett is on board. Rose is also ready to go full steam ahead. At 50 he's the youngest CEO of a major railroad. And he has a reputation for bringing change to the stodgy industry. Matt, when Warren Buffett announced that he was buying Burlington Northern he said that this is an all in bet on America's economic future. Most people think of railroads as being kind of old-fashioned, not exactly a growth engine. So give us your case why railroads are the future.
MATTHEW ROSE, CHAIRMAN & CEO, BURLINGTON NORTHERN SANTA FE: The future part of it is really, when we think about the challenges facing our country, we think of as a three-legged stool. Reduce our dependency on foreign oil, reducing our carbon footprint and improving America's highways for commuters and highway transportation. And the railroads, quite frankly, are the future to be able to do that.
GHARIB: So did Warren Buffett buy at the right time? Is the economy picking up enough to give a boost to the rails?
ROSE: Well, you have to remember Warren was a shareholder for a number of years. And so he had different entry prices. He was a holder of 22 percent of the company for a number of years. But certainly if you think about Warren's view of a long-term value, he will do very well with this investment.
GHARIB: As you know, there is talk in Congress to re-regulate the industry. If that happens, how does that change the growth outlook for the railroad industry?
ROSE: Sure it possibly could. And we'll just have to see the devil in the detail of that. But certainly we believe that a free market approach to transportation has served this country very well. And you can still have partial changes to the regulatory environment and allow the railroads to do what they need to do. And that is to add more capacity to the industry.
GHARIB: Now that Burlington is part of Berkshire Hathaway, do you feel that you have more freedom to invest and expand? ROSE: We're in about month three now. And this month we're here today is typically our annual meeting month. It's typically our quarterly release month. Two things that I'm not doing. So it is a little different. And when we think about how that will translate into how we run this company again, I think all that will be very positive that we will be focused over a little bit longer term horizon than perhaps what is going on in a given quarter.
GHARIB: So do you have a wish list of projects that you just couldn't do as a public company but now seem possible.
ROSE: There is no doubt that Warren has been very clear he wants to us reinvest in the railroad. And if you think about, if you are a public company, in terms of generating free cash flow, you really have three different alternatives. Buy back your stock. Dividend out to your shareholders or reinvest in your company either your own company or through a strategic acquisition. We no longer can buy back our own stock because we don't have any so we're down to dividending (ph) up to Berkshire as the parent or reinvesting in our company. And I think Warren's made it clear that he wants to see us reinvest back in the railroad.
GHARIB: What is the key advantage of having Warren Buffett on your side?
ROSE: Well, first off he is a great thought leader. When we are looking for debate, discussion on how to finance our debt or just issues around strategic acquisitions, certainly being able to pick up the phone and call Warren Buffett is a tremendous advantage.
GHARIB: And what do you have to do in return? Does he expect you to deliver certain earnings and certain returns?
ROSE: No. He has an incredible belief that well run businesses will produce above-average returns over the long term. And that's what he -- I mean without a doubt, that's implied of what he expects from us.
GHARIB: You're going to be going to Omaha --
GHARIB: . this week and for your first shareholders' meeting. What are you expecting?
ROSE: I have no idea. I have never been to a shareholder meeting in Omaha, one of his. Typically our annual meets were lasting a half an hour to 45 minutes. There was really not a lot of substance. And so I am going in to this hearing and reading about almost a Woodstock of the music industry. And listening to Warren and Charlie talk for hours, which I think will be fascinating. So I'm all in. I will be there for three days. I'm looking forward to it.
GHARIB: Tomorrow, we continue our conversation with Matt Rose. He tells me what it's like to have Warren Buffett as his boss.Download the 2009 Warren Buffett Letter & 2009 Annual Report to Berkshire Hathaway Shareholders
Download the 1977 - 2009 Warren Buffett Letter's to Berkshire Hathaway Shareholders
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