Final hours! Save up to 55% OFF InvestingProCLAIM SALE

Warren Buffett ends drought with Berkshire's $11.6 billion Alleghany purchase

Published 03/21/2022, 05:42 AM
Updated 03/22/2022, 03:13 PM
© Reuters. FILE PHOTO: Berkshire Hathaway Chairman Warren Buffett walks through the exhibit hall as shareholders gather to hear from the billionaire investor at Berkshire Hathaway Inc's annual shareholder meeting in Omaha, Nebraska, U.S., May 4, 2019. REUTERS/Scott
GS
-
AAPL
-
OXY
-
BRKa
-
KEX
-
Y
-

By Noor Zainab Hussain and Jonathan Stempel

NEW YORK (Reuters) -Warren Buffett's Berkshire Hathaway (NYSE:BRKa) Inc on Monday struck an agreement to buy insurance company Alleghany (NYSE:Y) Corp for $11.6 billion, only weeks after the 91-year-old billionaire bemoaned a lack of good investment opportunities.

Alleghany, the owner of reinsurer Transatlantic Holdings Inc, would expand Berkshire's large portfolio of insurers, which includes auto insurer Geico, reinsurer General Re and a unit that insures against major catastrophes and unusual risks.

"Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years," Buffett, who has run Berkshire since 1965, said in a statement.

The acquisition, one of the five largest in Berkshire's history, would reunite Buffett with Joseph Brandon, who led General Re from 2001 to 2008 and became Alleghany's chief executive in December.

It would also end Buffett's six-year drought of large acquisitions and help him to deploy some of the $146.7 billion of cash and equivalents his conglomerate had at the end of last year.

In his Feb. 26 annual shareholder letter, Buffett lamented that "internal opportunities deliver far better returns than acquisitions" and that little "excites us" in equity markets. He pledged to keep $30 billion cash on hand.

Cathy Seifert, an analyst at CFRA Research in New York, said the merger should offer no surprises, reflecting Buffett's familiarity with Alleghany and Brandon.

"Berkshire has been under pressure to do a deal, and this may be the path of least resistance, though Alleghany will be a positive addition," she said.

"In terms of its business model and culture, this is a very strong fit."

Berkshire agreed to pay $848.02 in cash per Alleghany share, representing a 25% premium over Friday's closing price.

Alleghany would operate as an independent unit of Berkshire, which is based in Omaha, Nebraska.

Shares of Alleghany closed up $167.85, or 24.8%, at $844.60 on Monday. Berkshire's Class A shares rose $12,009, or 2.3%, to $525,000, their highest-ever close.

'MINI-BERKSHIRE'

The transaction is expected to close in the fourth quarter, pending regulatory and Alleghany shareholder approvals.

Alleghany has a 25-day "go-shop" period to find a better offer. No break-up fee would be owed if the merger fell through.

Berkshire is known for its refusal to engage in bidding wars for whole companies.

Insurance typically generates more than 20% of operating profit at Berkshire, which has dozens of businesses including BNSF Railway, Berkshire Hathaway Energy and Dairy Queen ice cream and restaurant chain.

Berkshire also invests hundreds of billions of dollars in stocks such as Apple Inc (NASDAQ:AAPL), and has this year invested more than $6.4 billion in Occidental Petroleum Corp (NYSE:OXY).

New York-based Alleghany was founded in 1929 by railroad entrepreneurs Oris and Mantis Van Sweringen and was transformed into an insurance and investment operating company under Fred Morgan Kirby (NYSE:KEX) II's leadership from 1967 to 1992.

CFRA Research's Seifert said Alleghany has long held itself out as a "mini-Berkshire," being an insurance conglomerate that redeploys some of its excess capital in other businesses.

Buffett said the companies had "many similarities," including what Brandon described in a letter to Alleghany's more than 13,000 employees as a "shared philosophy of managing businesses for the long term."

Alleghany's other units include RSUI Group Inc, an underwriter of wholesale specialty insurance, and CapSpecialty, which provides specialist cover for small and medium-sized businesses.

© Reuters. FILE PHOTO: Berkshire Hathaway Chairman Warren Buffett walks through the exhibit hall as shareholders gather to hear from the billionaire investor at Berkshire Hathaway Inc's annual shareholder meeting in Omaha, Nebraska, U.S., May 4, 2019. REUTERS/Scott Morgan

Its Alleghany Capital Corp owns several non-insurance businesses, including companies that focus on industrial parts, machine tools, hotels, toys and funeral services.

Goldman Sachs (NYSE:GS) and the law firm Willkie Farr & Gallagher advised Alleghany on the transaction. The law firm Munger, Tolles & Olson advised Berkshire.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.