Warren Buffett's Berkshire Hathaway Inc will pay $26 billion to buy out railroad Burlington Northern Santa Fe Corp in what the billionaire investor called a bet on the U.S. economy.

The deal, Buffett's biggest-ever acquisition, is priced at a premium of 31.5 percent over BNSF's closing stock price on Monday and values the railroad at $34 billion.

It's an all-in wager on the economic future of the United States, Buffett said in a statement, adding that railroads are key to the U.S. economy and will benefit as recovery takes hold. I love these bets.

Berkshire Hathaway will pay $100 per share in cash and stock for the 77.4 percent of BNSF shares it does not already own. Berkshire will also assume $10 billion of BNSF debt. The deal is expected to close in the first quarter of 2010.

Shares of railroad companies rallied in premarket trading following news of the deal, and stock index futures pared losses.

For the market, it can be seen as a sign of confidence (about the economy), said Peter Boockvar, equity strategist at Miller Tabak + Co in New York, adding it was logical for Buffett to buy the rest of the railroad.

Berkshire is seeing way past some impending economic recovery signs now and looking into the future, he said.

BNSF shares were up 29 percent to $98.18 in premarket trading.

Berkshire's board approved a 50-for-1 split of the company's Class B common stock to help ease the way for the deal.

We'll have more people moving more goods 10, 20, 30 years from now, Buffett, Berkshire chairman and CEO, said on CNBC television. I just believe this country will prosper.

He said he was not interested in buying the rest of BNSF rival Union Pacific Corp, whose shares he also owns. He said he expected the companies to remain rivals for the next half century.

We won't be making any huge deals for a while, he told CNBC. I made (BNSF CEO Matt Rose) an offer and he said he would take it to his board and it took about 15 minutes.

BETTING ON THE FUTURE OF COAL

Jack Ablin, chief investment officer at Harris Private Bank in Chicago, said the deal was a bet on the future of coal as a source of energy.

Because Burlington Northern moves coal around the country, I think Buffett is trying to get into coal but doing it in a cheaper way, he said. It's leveraged against coal's demand without actually having to buy the commodity itself.

Some analysts said the deal did not necessarily signal a wave of mergers and acquisitions in railroads.

For an outsider to make an acquisition of a railroad or invest a significant amount in a railroad -- you may see more people get interested in that possibility, said George Van Horn, senior analyst with market research firm IBISWorld.

But as far as seeing railroad themselves merging, I wouldn't expect that right away, he said.

Shares of BNSF rivals are rose on news of the deal. Union Pacific gained 8 percent to $59.40, Norfolk Southern Corp jumped 8 percent to $50.40, and CSX Corp was up 8 percent to $46.20.

Berkshire said the 50-for-1 split of its Class B shares would make it easier for smaller BNSF shareholders to swap their shares for Berkshire stock. Class B shares were up 2 percent to $3,343 in premarket trade.

Buffett, one of the world's richest men and one of its most revered investors, is known for making big long-term bets. He wrote in The New York Times in October 2008 that he had been buying American stocks in his personal account, a few weeks after the collapse of Lehman Brothers set off worldwide selling.

Fears regarding the long-term prosperity of the nation's many sound companies make no sense, Buffett wrote at the time.

(Reporting by Nick Zieminski; Additional reporting by Angela Moon, Christopher Kaufman, Ryan Vlastelica, Helen Chernikoff and Jonathan Stempel; editing by Gerald E. McCormick and John Wallace)

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