Burlington Northern Inc., which owns one of the nation's largest railroads, said yesterday it will spin off its substantial oil, natural gas and real estate holdings into a separate publicly held company.
The Seattle-based company said it will offer investors 13 percent of Burlington Resources Inc., with Burlington Northern retaining the balance of the new firm's stock. Plans eventually call for Burlington Northern to distribute the remaining 87 percent interest to its shareholders if the company can get a favorable ruling from the Internal Revenue Service that the distribution would not be taxable income.
If that ruling is obtained and the distribution takes place, shareholders of Burlington Northern would then be shareholders in two separate companies, presumably with a greater value than the current value of the single holding company.
Burlington's stock closed up $1.62 1/2 yesterday at $69.
One company would be primarily a transportation firm built around the 25,500-mile railroad. The other would include Meridian Oil Inc., among the largest domestic independent oil and gas companies in terms of reserves; El Paso Natural Gas Co., which owns 22,000 miles of natural gas pipeline; a coal and mineral development company, and 2.5 million acres of real estate, including timberland.
Analysts said the restructuring is designed to deter a takeover and enhance shareholder value. But how much the move benefits shareholders depends on what value the market puts on the stock of the new company, said Grame Lidgerwood of First Boston Co.
The initial price per share of stock in the new resource company is estimated to be between $25 and $28. As a result, the total offering, to be handled by Shearson Lehman Hutton Inc. and Morgan Stanley & Co., is expected to bring between $500 million and $560 million.
The move also may put pressure on other railroads, such as Union Pacific, to take similar actions to increase shareholder value.
Burlington Northern has widely been viewed as a potential takeover target because its parts separately were believed to be worth more than the stock value of the combined holding company. But separating it into two holding companies -- one for transportation and one for natural resources -- may not end the possibility of a takeover.
In fact, said Lidgerwood, a potential buyer might be more interested in the natural resource company if those assets could be acquired without also having to buy the railroad.
Burlington Northern said the creation of the new company would give the resource firm greater access to financial markets at lower costs and allow management of the railroad company to focus its attention on its railroad activities. Last year, with oil and gas earnings down, the transportation side of the company was the moneymaker.