Burlington Deal "Transformative" for Buffett's Berkshire, But Is It Good?

Last month, Berkshire Hathaway shareholders approved splitting the company’s class B shares 50-for-1 as part of the firm's $26.3 billion acquisition of Burlington Northern Santa Fe. 

The class B shares have enjoyed a pop since its inclusion in the S&P 500 index, but the deal has not come without a cost. On Thursday, S&P cut Berkshire's credit rating to AA+ from AAA as Berkshire sought to raise $8 billion in debt. Berkshire shares were down nearly 3% in recent trading. 

The Burlington deal has also caused some to question the judgement of Warren Buffett. Recently, Buffett recently criticized Kraft for issuing undervalued shares to buy Cadbury; critics argue he's being hypocritical by issuing "undervalued" Berkshire shares to buy the nation's second-largest railroad.

Buffett was asked this question directly at a special shareholder meeting last month and our guest Jeff Matthews, head of hedge fund Ram Partners, was there.

"He said, 'Look. With the Cadbury deal as Kraft shareholder, I just feel poorer,' " says Matthews, a Berkshire shareholder and author of Pilgrimage to Warren Buffett's Omaha. His comments during the meeting also suggest Buffett may be cautious about Kraft's leadership and long-term strategy, say Matthews, author of the popular blog, Jeff Matthews Is Not Making This Up.  

The mammoth railroad deal may be part of the Oracle of Omaha's larger vision to turn Berkshire into a conglomerate that's less dependent on his singular investment choices down the line, Matthews says. In other words, it's a way to insure Berkshire's long-term profitability even if whoever replaces Buffett -- and whenever that occurs -- isn't as stellar a stock-picker as the "Oracle of Omaha." 

But was the Burlington Northern deal smart? Did Buffett abandon his convictions by splitting the stock? Are Berkshire shares undervalued as, among others, T2's Whitney Tilson has argued?

For a discussion on these questions and to embed the video, click "more."