Burlington Northern Splits Operations in 2 : Non-Transport Units Isolated, to Be Spun Off

Burlington Northern Inc., owner of the nation’s largest railroad, announced a major restructuring Thursday that includes separating non-transportation operations into a subsidiary that eventually will be spun off as a separate company.

For now, the Seattle-based company is seeking to sell a 13% stake in its recently formed Burlington Resources Inc. to the public and raise about $500 million for possible expansion. The unit contains Burlington Northern’s energy, natural resource and real estate operations.

“The objective here is to enhance shareholder value by creating two very viable companies--one in transportation and one in resources,” Chairman Richard M. Bressler said at a meeting with financial analysts after the announcement.

“We think the marketplace has penalized our company because we are a conglomerate.”

Trading on Wall Street appeared to confirm some of those concerns. Burlington Northern’s stock rose $1.75 a share Thursday to close at $69.125 on the New York Stock Exchange in active trading.

The stock had risen before the announcement on speculation that Burlington Northern was planning to sell its natural gas pipeline company or other assets.

Different Businesses

George Morris, an analyst with the investment firm Prescott Ball & Turben Inc., said separating Burlington Northern’s transportation operations from the others was a move in the right direction.

“They’re two distinctively different businesses--the railroad and the natural resources,” Morris said. “When you complicate businesses, you have a multitude of influences as opposed to a purer play. It confuses shareholders and distracts from the industry.”

For example, he said, when energy prices rise, that usually hurts the company’s transportation unit but boosts the natural resource operations.

The company said about 60% of its operating income comes from transportation operations, with the remainder from natural resources.

Bressler said the company’s restructuring was a two-step process.

The first objective is to establish a market for the newly created Burlington Resources stock by issuing a minority stake to the public, then break off the unit into a separate, publicly owned company.

Burlington Northern said it filed a registration statement with the Securities and Exchange Commission for an initial public offering of 20 million shares of common stock. It said the Burlington Resources stock is expected to be priced at $25 to $28 a share, putting a value on the offering of $500 million to $560 million.

When the offering is completed, probably in about a month, Burlington Northern said it would retain 130 million shares in Burlington Resources, or 87% of the subsidiary’s stock.