Berkshire Agrees to Buy Xtra for $590 Million

OMAHA —  Warren Buffett’s Berkshire Hathaway Inc. agreed to buy Xtra Corp., a container leasing company, for about $590 million in cash, a bet shipping demand will rebound with the economy.

Berkshire agreed to pay $55 a share for Xtra’s 10.6 million shares, or about $590 million. It also will assume Xtra’s $710 million of debt.

Julian Robertson, the billionaire head of Tiger Management and Xtra’s biggest shareholder, agreed to the transaction, which followed an earlier attempt to sell the company in 1998.

Omaha-based Berkshire’s investment comes as shipping companies that lease Xtra’s equipment struggle in a slowing U.S. economy.

Xtra on Tuesday reported a 57% drop in earnings for its fiscal third quarter to $6 million, or 55 cents a share, because of lower freight demand and increased costs. Such quarterly blips in earnings aren’t a concern to Berkshire, which takes a long-term view of its investments.

“What Berkshire has been successful in doing is paying fair prices for assets that are out of favor,” said Alice Schroeder, an analyst at Morgan Stanley Dean Witter & Co. “It’s buying straw hats in the wintertime.”

During the dot-com boom, when investors piled into technology companies, Buffett’s acquisitions included a utility, a furniture merchant and a brick maker. In the last 12 months, Berkshire shares gained 23%, and the Standard & Poor’s 500 index slid 15%.

Robertson’s previous attempt to sell Xtra, a $1.9-billion agreement with Apollo Management and Interpool Inc., collapsed in 1998. He couldn’t be reached for comment.

The purchase by Berkshire, whose biggest interests are in insurance, was its second this year.

Shares of Westport, Conn.-based Xtra trade at 11.4 times estimated earnings, compared with 32 for the S&P; 500. Xtra’s shares rose $2.42 to close at $54.72 on the New York Stock Exchange. Berkshire’s Class A shares rose $1,600 to close at $69,200 on the NYSE.

“If you think the Far East is coming back and the current U.S. recession has bottomed out, there would be a reason to buy Xtra because of an expected upturn in demand,” said Randy Resor, vice president of Zeta Tech Inc., a transportation consulting firm in Cherry Hill, N.J.

Xtra will benefit from Berkshire’s triple-A credit rating, the highest, for the frequent borrowing needed by a leasing company. Standard & Poor’s Corp. rated Xtra seven notches below that at BBB-plus.