A previous version of this story misspelled Warren Buffett's name and incorrectly reported the percentage of U.S. electricity generated by coal, as well as a share price.
NEW YORK (MarketWatch) -- Berkshire Hathaway Inc. said Tuesday it agreed to buy railroad operator Burlington Northern Santa Fe Corp. in a $44 billion deal that Chairman Warren Buffett called "an all-in wager" on the U.S. economy.
It is the company's biggest acquisition ever.
Berkshire /quotes/comstock/13*!brk.a/quotes/nls/brk.a (BRK.A 100,095, +1,345, +1.36%) agreed to buy Burlington /quotes/comstock/13*!bni/quotes/nls/bni (BNI 97.00, +20.93, +27.51%) for $34 billion, or $100 a share. It already owns more than a fifth of the railroad operator, so the cost is roughly $26 billion, which will be paid for with about 60% in cash and 40% in Berkshire shares.
Berkshire also is taking on about $10 billion of Burlington debt, bringing the size of the deal to $44 billion. That values Burlington at a 30% premium to its closing share price on Monday.
Burlington stock soared 28% to $97.58 in afternoon trading, and shares of rival railroad operators including CSX Corp. /quotes/comstock/13*!csx/quotes/nls/csx (CSX 45.97, +3.13, +7.31%) , Union Pacific Corp. /quotes/comstock/13*!unp/quotes/nls/unp (UNP 59.41, +4.35, +7.90%) and Norfolk Southern Corp. /quotes/comstock/13*!nsc/quotes/nls/nsc (NSC 49.15, +2.52, +5.40%) also gained. See story on transport stocks.
Berkshire Class A shares and Berkshire Class B shares /quotes/comstock/13*!brk.b/quotes/nls/brk.b (BRK.B 3,325, +60.35, +1.85%) rose 1.4%.
For Berkshire, the acquisition puts some of the insurance-focused conglomerate's large cash hoard to work in a business that's sensitive to a possible economic recovery in America.
"Our country's future prosperity depends on its having an efficient and well-maintained rail system," Buffett said in a statement. "Conversely, America must grow and prosper for railroads to do well."
"It's an all-in wager on the economic future of the United States," he added. "I love these bets."
Berkshire amassed more than $40 billion in cash during the credit-fueled economic boom earlier this decade. When the financial crisis struck last year, Buffett put a lot of that money to work. However, Berkshire still had more than $20 billion in cash at the end of the second quarter, even as official U.S. interest rates languished close to zero.
"While cash provides flexibility and liquidity, it's effectively earning nothing right now," said Justin Fuller, editor of Web site Buffettologist.com and a partner at Midway Capital Research & Management LLC. "It's better for Berkshire to invest in a business like Burlington that will do better if the economy recovers."
Joining the family
For Burlington, becoming part of Berkshire may allow it to make longer-term investments and relieve some of the short-term pressure that comes with being a publicly traded company.
"We are thrilled to have the opportunity to become part of the Berkshire Hathaway family," Burlington Chief Executive Matthew Rose said.
Burlington may get a chance to haul more freight that's produced by some of Berkshire's operating subsidiaries, according to Bill Bergman, an equity analyst at Morningstar.
The railroad operator may also be able to haul more coal to power stations owned by Berkshire's utility unit, MidAmerican Energy. See story on Buffett's coal bet.