Berkshire surges after being chosen for S&P 500

Shares of Berkshire Hathaway Inc (NYSE:BRK-ANews; NYSE:BRK-BNews) surged on Wednesday after Standard & Poor’s said it will add the company run by billionaire Warren Buffett to its S&P 500 stock index (^SPXNews).

Berkshire’s Class B shares rose $3.20, or 4.7 percent, to $71.20 in morning trading. The Omaha, Nebraska-based company’s Class A shares rose $5,064, or 5 percent, to $106,815.

“Many Berkshire shares are in the hands of investors, including Buffett, who are unlikely to sell,” said James Armstrong, president of Henry H. Armstrong Associates in Pittsburgh. “That could produce a larger than normal spike in the stock price because it is being added to the index.”

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S&P late Tuesday said Berkshire will replace Burlington Northern Santa Fe Corp (NYSE:BNINews) in the S&P 500, and the S&P 100 index of big blue-chip companies, on a date to be announced.

Berkshire is buying Burlington, the second-largest U.S. railroad company, in a roughly $26.4 billion stock-and-cash transaction expected to close as soon as next month.

Buffett, the world’s second-richest person, will still own about one-fourth of Berkshire’s stock after the merger closes.

The addition of Berkshire to the S&P 500 follows the Omaha, Nebraska-based company’s 50-for-1 split last week of its B shares to make it easier for Burlington investors to swap their shares for Berkshire shares in a tax-free way.

Adding Berkshire to the S&P 500 also forces the portfolio managers who track the index to buy its shares. They may have to pay up because most Berkshire investors consider the stock a long-term investment.

“The split made it easier for small investors to buy, and when index investors have to buy the stock, that increases demand even more,” said Vahan Janjigian, author of “Even Buffett Isn’t Perfect: What You Can — and Can’t — Learn from the World’s Greatest Investor.”

Despite its $158 billion market value, Berkshire was long excluded from the S&P 500 because its shares were not liquid enough. It is the largest publicly-traded U.S. company not in the index.

The company had no comment on the S&P announcement.

Berkshire operates roughly 80 businesses including Geico insurance, Dairy Queen ice cream and Fruit of the Loom undergarments. It also has tens of billions of dollars of stock and bond investments.

Last week Buffett told CNBC television the stock split could give Berkshire about 700,000 investors.

S&P is a unit of McGraw-Hill Cos (NYSE:MHPNews).

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