In the largest deal ever done by billionaire Warren Buffett, Berkshire Hathaway (BRK.A) said on Tuesday it will purchase national railroad giant Burlington Northern Santa Fe (BNI) for $44 billion.

Berkshire, which already owned a 22.6% stake in Burlington Northern, will acquire the railroad’s shares for $34 billion, plus $10 billion in debt. The deal, including Berkshire’s current holdings, values BNSF at $100 a share, a 31% premium to Monday’s closing price.

Shares of Burlington Northern jumped sharply on the news, up 28% at $97.58 at midday.

Buffett’s $44 billion bet on the health of the U.S. economy and the railroad business is a big one. The "Oracle of Omaha" has been a long-time fan of the railroad industry, purchasing a stake in BNSF two years ago on the belief that long-haul transportation would shift from trucks to more fuel-efficient railcars. 

The rail industry, long dogged by decades of inefficiencies and lackluster demand, saw revenues and profitability return at the turn of the decade. “Our country's future prosperity depends on its having an efficient and well-maintained rail system," Buffett said in a statement. “Most important of all, however, it’s an all-in wager on the economic future of the United States. I love these bets.”

Buffett said the deal was made in a 10-minute conversation with BNSF executives about a week and a half ago while he was on business in Ft. Worth, Texas. The deal was easy to sign because he had been a long-time investor in Burlington and knew both the business and the management.

"I felt good about it back in 2006 when we first bought shares," Buffett said in an interview with FOX Business.

BNSF is one of the nation’s largest railroads, operating primarily out of the Western part of the country on 32,000 miles of track. The company reportedly moves enough of the nation’s coal supply every year to fuel 10% of the nation’s electrical usage.

Buffett said he was not purchasing the business as a way into the coal industry. Instead, he was more interested in the rail network and ability to move freight effectively.

"Coal over the years will become less important," he said.

Like other major transportation heavy companies, BNSF saw profits fall this year as economic activity contracted and there was less demand overall for rail transportation. Art Hatfield, transportation analyst with Morgan Keegan, said that industry volumes are down 17% to 18% from their peaks in 2007.

“This is an industry still bottoming out,” Hatfield said

BNSF reported adjusted quarterly earnings of $1.42 a share on Oct. 22, down from $1.99 a share a year ago.

The deal was approved by both companies’ board of directors and is expected to close in the first quarter of 2010, Berkshire said. According to the terms of the deal, Burlington shareholders can elect to receive $100 per share of the railroad or an appropriate amount of Berkshire Hathaway stock.

“We are thrilled to have the opportunity to become a part of the Berkshire Hathaway family,” said Matthew Rose, CEO of BNSF.

BSNF will become a wholly-owned and independent subsidiary of Berkshire Hathaway, and will continue to operate out of its Fort Worth, Texas, headquarters, the companies said in a statement.

The deal has helped spur a rally in other rail stocks, with BNI competitors CSX (CSX), Union Pacific (UNP) and Norfolk Southern (NSC) all closed higher.

There are no immediate reports on what Buffett will do with his other railroad stakes, which include Union Pacific and CSX. It is speculated that Berkshire may have to divest those stakes in the other railroads in order to meet anti trust requirements.