Wednesday, December 2, 2009

December news letter

Delmarva Timetable
News of the Delmarva Model Railroad Club
December 2009
Matt Schramm, Editor
Next Meeting
The next meeting will be held on Wednesday,December 2, 2009 in the Club meeting room.

Mail vs E-mail
With the cost of postage going up 2 cents on the 11th of May, I would like to make a plea to all the
snail-mailers that if you can get an e-mail account, it would definitely help the club. Right now it costs
roughly $250.00 per year for postage, ink, and paper to get the snail mail editions out. If any of you can
get the newsletter emailed to you, it would cut down on these costs.

Timetable Special Edition
Jeff Shockley, Editor
With 2009 being the 25th anniversary of the club, we are planning on a special edition of the newsletter
for November. It will contain ONLY club history items. If anyone has any pictures or stories of the last
25 years, please send them to me at

Layout News
All groups report things are progressing smoothly on all the layouts.

License Plate Frames
These fit over an automobile license plate. Available in Black or Chrome. The top has “Delmar,
Delaware” engraved on it, the bottom has
“Delmarva Model Railroad Club”. Price for members $15.00, non-members $20.00. Custom orders are

Club Shirts
Bill Shehan is accepting orders for club shirts. Two styles are available and come in sizes Small to
Styles, Sizes and Prices are:
Golf Shirts (Short Sleeve Only)
S, M, L, XL $22.75
2XL $26.25
3XL $28.75
4XL $31.25
Broad Cloth (Long and Short Sleeve)
S, M, L, XL $25.00
2XL $27.50
3XL $30.00
4XL $32.50

Is Buffett's BNSF takeover a good move at a good price?

Early in November, the world's second-richest man made a deal to buy America's largest railway,
swallow it whole and take it off the market.
At a total value of $34-billion (U.S.) it is Warren Buffett's biggest deal ever. If shareholders finalize the
deal as expected early in 2010, it can be argued that his purchase of Burlington Northern Santa Fe
(BNI-N98.530.070.07%) (BNSF), based in Fort Worth, Texas, will do good things for the U.S.
economy and cement Mr. Buffett's legacy as the Sage of Omaha. When you're pushing 80, that's a good
But what does it mean to ordinary investors? There are those who are argue that the deal isn't very good
for shareholders of Mr. Buffett's company, Berkshire Hathaway (BRK.B-N3,336.78-15.52-0.46%) , or
those of BNSF, even though Mr. Buffett has offered the equivalent of $100 a share in cash and stock.
Hard on the heels of the deal's Nov. 3 announcement, three lawsuits were filed alleging that BNSF
management shortchanged shareholders, rushing into a deal for their own benefit and failing to get the
highest price for the railroad's shares.
You could argue that the litigants are all wet, as the deal for the 77 per cent of the stock Berkshire
Hathaway does not already own represents a 32-per-cent premium over BNSF's closing price on Nov.
2, the day before the deal was announced. At one point last March, the stock had dipped to $51.20. Too
bad for his own shareholders, Mr. Buffett wasn't able to make the deal then. Still BNSF stock had
climbed to $113 on its own in May, 2008, before the recession took the steam out of its locomotives, so
maybe Mr. Buffett hasn't lost all is marbles.
Even Mr. Buffett concedes that BNSF doesn't come cheap, unlike some of his other legendary deals.
And he's doing some things in this deal that he doesn't normally do – like issuing stock. He's offering a
50-to-one split on Berkshire Hathaway's B shares, which means that Berkshire's B shares, which are
currently trading at about $3,354 will trade around $67 after the deal is approved.
At least you won't have to mortgage your house to buy one, which will still be the case with Berkshire's
A shares, currently trading at about $100,600 – the most expensive stock on the market.
You could dismiss the litigants as greedy, as did BNSF spokesman John Ambler, who told the Fort
Worth Star-Telegram, “Unfortunately, it has become almost a universal occurrence for certain law firms
to file lawsuits of this type around any corporate M&A activity.”
Yet a Scotia Capital Markets report indicates that Mr. Buffett paid too much for his railroad. A report
issued at the end of November indicates that profit estimates for the Big Six North American railroads
are inflated and may have to be adjusted downward. Since the deal was announced shares of the other
five railways are up 12 per cent on average, and that includes Canadian National Railway Co. (CNRT56.15-
0.15-0.27%) , up five per cent, and Canadian Pacific Railway Ltd. (CP-T52.300.400.77%) , up
more than eight per cent.
“In the short term, we would not be surprised to see the group retrace the gains made post the
announcement of the bid,” writes Scotia analyst Cherilyn Radbourne.
Not a ringing endorsement of railroads.
Even Alice Schroeder, former Wall Street analyst, Bloomberg columnist and Buffett biographer, thinks
Mr. Buffett paid too much for BNSF. “I'm not surprised he bought it,” she told Bloomberg on the
Economy. “I was certainly surprised at the price … he's getting a five-per-cent return on his initial
investment which is considerably less than half of what he likes, and he's issuing stock.”
So when that stock becomes available to trade, will it indeed be overpriced at one-fiftieth of its current
Despite what Ms. Schroeder thinks, UBS analysts point out that while Mr. Buffett paid within the
acceptable range of earnings multiples of 8 to 9, the multiple was based on recession-depressed
earnings. If his offer was based on that May, 2008, price of $113, for example, it would fall below 8
times earnings, which is why some shareholders are going to court.
Still, when your railroad is coming out a deep hole, $100 a share sounds pretty good, and it's likely the
deal will go through as scheduled early in the new year.
Which leaves a lot of people still asking the fundamental question: A railroad? There was, a time, not
so long ago, when Buffett and Co. were leery of investing in railroads because they were capitalintensive,
mired in union strife and make-work rules, but the Sage has changed his tune in recent years.
Rail is more environmentally sound than trucking. One freight train can move a ton of cargo 436 miles
on a single gallon of diesel and can carry the load of 280 trucks.
According to Sharon Dunn, the executive director of the Georgia Railroad Association, if one per cent
of freight currently moved by trucks went on rail instead, the reduction in greenhouse gases would be
1.2 million tons and the fuel savings would be 110 million gallons.
As the price of fuel increases, rail becomes an increasingly attractive alternative – and that capital
intensive disadvantage becomes an advantage: no one is going to start a railroad. In defending the deal,
Mr. Buffett told CNBC: “I basically believe this country will prosper and you'll have more people
moving more goods 10 and 20 and 30 years from now and the rails should benefit.”
Mr. Buffett has famously called the deal “an all-in wager on the economic future of the United States.”
And, he added: “I love those bets.”
Ok, it's not high-tech or bio-tech or Google. But it's certainly one of the most intriguing deals of the
21st century, and it puts the spotlight on railroads. Many analysts believe that Canadian Pacific, which
has none of the foreign ownership restrictions of the larger Canadian National, could be the next
railroad on the block. So you may not have to buy into BNSF at a premium – CP is up in the wake of
the BNSF deal, but nowhere near the 30-per-cent range – to get in on the next big thing. All aboard!

Santa Is At Railroad Museum Saturdays In December

posted November 30, 2009
Santa will be at the Tennessee Valley Railroad Museum Grand Junction Station on Dec. 5, 12
and 19 from 10 a.m.-4 p.m.
While at the station ride the Missionary Ridge Local for a 55 minute adventure that includes
riding the train, pulled by steam engine #610, over bridges, through the historic Missionary
Ridge Tunnel, and watching the engine turn on an operating turn table. Adult tickets are $14
and child tickets (age 3-12) are $8.A few tickets are still available for the North Pole Limited
- the nighttime train ride to the North Pole. Call 894-8028 or check for
available dates and reservations. Departure times are 5:45 and 7:30 p.m. Tickets are $22
(ages one and up).

GE Transportation pressing for Amtrak deal

Team lobbies for new locomotives
Amtrak hopes to replace 54 of its oldest passenger locomotives, and Lawrence Park-based GE
Transportation wants to bid for the contract.
But at least for now, there's no money in the government's 2010 budget to pay for them.
In what might have once seemed like an unusual collaboration, company officials and its main union
are making a joint plea for Congress to include an appropriation for new locomotives.
"We have the best technology and we know the customer requirements and believe we are best
positioned," Lorenzo Simonelli, the company's chief executive, said in an interview Monday.
"This comes down to funding. Funding for Amtrak for the purchase of diesel electric locomotives isn't
currently planned for in the 2010 appropriation."
Jim Pifer, president of Local 506 of the United Electrical Radio and Machine Workers of America, who
joined Simonelli in the interview, said union and management share the same goal.
"We have been trying to work together," Pifer said. "This is important for the community. As GE goes,
the community goes. We are all together on this."
The federal government's $787 billion stimulus bill did include billions of dollars for rail infrastructure
and high-speed rail.
What it didn't include is money to buy higher-speed locomotives that could bridge the gap between
existing passenger service and the arrival of true high-speed rail.
GE Transportation recently signed an agreement with the Chinese Rail Ministry to jointly pursue
opportunities in true high-speed rail, in which locomotives are capable of topping 200 mph.
But the company is ready today to build machines that will run at 124 mph, and both Simonelli and
Pifer are asking employees and members of the community to press lawmakers for Amtrak funding.
His plea comes just days after GE Transportation collected company IDs from the last of about 1,480
employees who lost their jobs as part of a massive reduction at the local plant. The number includes
about 550 who agreed to retire early.
Winning a contract to build 50 or so Amtrak locomotives wouldn't bring workers back, but it would
help keep employees on the job, Simonelli said.
Pifer said he's hoping ultimately that more sales will mean more employees.
"Hopefully, this is just the first of orders to come," he said. "I have a personal commitment to people
who got laid off. My job is to get as many people back as quickly as we can."
Both Simonelli and Pifer said members of Congress have been supportive.
In a statement from her press secretary, U.S. Rep. Kathy Dahlkemper, of Erie, D-3rd Dist., said she's
committed to securing funding that could produce local jobs and is advocating for passenger-rail
Along with Dahlkemper, Pennsylvania's U.S. senators, Democrats Arlen Specter and Bob Casey, sent a
letter in September to Amtrak's chairman, calling for the replacement of outdated locomotives.
In an Oct. 1 letter to the Senate subcommittee on transportation, Specter and Casey offered their
support to provide the funding.
What would be an order for 54 passenger locomotives mean to Erie County's largest employer?
Simonelli didn't offer a monetary estimate, but he did say the contract would be worth more than a
recent agreement to sell 300 locomotive kits to the Chinese.
Funding for Amtrak doesn't automatically mean a contract for GE Transportation, but it would give the
company a chance.
"It's a competitive bidding process, but I think we are the best-equipped," Simonelli said

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