Warren Buffett Puts Some of His $144 Billion to Work With Alleghany Deal

Warren Buffett


Paul Morigi/Getty Images for Fortune/Time Inc

It was only three weeks ago that




Berkshire Hathaway

Chairman and CEO Warren Buffett wrote of the unpleasantness associated with having $144 billion in cash.

“They are also never permanent,” he said of having such a large cash pile. He’s putting at least some of that cash to work, agreeing to buy reinsurer




Alleghany
Corp.

for $11.6 billion.

It’s the first multi-billion-dollar deal Buffett has reached since the 2020 acquisition of




Dominion Energy
’s

gas transmission business and his largest since the nearly $35 billion acquisition of Precision Controls in 2016.

“Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years,”Buffett said in a statement.

The deal, struck at a 29% premium to Alleghany’s average closing price over the last month, will put another family-held company in Berkshire Hathaway’s stable if successful. Alleghany does have a brief period of time to shop for a superior transaction.

Alleghany doesn’t appear to be a bargain. The companies said the deal is priced at 1.26 times book value. According to FactSet, other reinsurers trade on a median of 1.08 times book value.

With so much cash to burn, Buffett could afford to pay on the high side.

Steve Goldstein

*** Join Barron’s senior managing editor Lauren R. Rublin and deputy editor Ben Levisohn today at noon when they discuss the outlook for financial markets, industry sectors, and individual stocks. Sign up here.

***

China Eastern




Boeing

737 Crashes in Southern China

A Boeing 737 plane operated by




China Eastern Airlines

carrying more than 130 people has crashed in southern China. The Civil Aviation Administration of China (CAAC) confirmed the plane crash Monday.

  • There were no immediate reports on the number of casualties, according to multiple news outlets. The CAAC said: “On March 21, 2022, a Boeing 737 of China Eastern Airlines lost contact over Wuzhou during the Kunming-Guangzhou flight. The plane has now been confirmed to have crashed.”

  • There were 132 people on board, including 123 passengers and 9 crew members, it confirmed.

  • The plane that crashed was a Boeing 737-800, according to Flightradar24. Boeing said in an emailed statement that it was “aware of the initial media reports and are working to gather more information.”The website for China Eastern Airlines was shaded in black and white.

  • The aircraft involved wasn’t a new-generation Boeing MAX jet, the model involved in previous fatal crashes in Indonesia and Ethiopia, according to Bloomberg.

What’s Next: The CAAC has dispatched a working group to the scene. Boeing shares were falling more than 6% in premarket trading Monday. American depositary receipts of China Eastern were declining 16%.

Joe Woelfel

***

Biden Heads to Emergency NATO Summit With European Allies

President Joe Biden heads to Brussels Thursday for a two-day emergency meeting with allies from the North Atlantic Treaty Organization and European nations. They will discuss the West’s response to Russia’s attacks on cities and civilians in Ukraine. Biden won’t travel to Ukraine.

  • A decades-old Pentagon program to secure biological weapons in the former Soviet Union has raised tensions with Russia, which accused the Pentagon of funding weapons work in Ukraine’s labs. U.S. officials denied the claims, saying Russia could try to justify using its own weapons of mass destruction.

  • Ukraine President Volodymyr Zelensky, told Fareed Zakaria GPA on CNN that he is ready to negotiate with Putin, “if there is just 1% chance for us to stop this war.” But he refused to recognize the independence of two separatist republics in Eastern Ukraine, as Russia has demanded.

  • Oksana Markarova, Ukraine’s ambassador to the U.S., told CBS that Russian forces cutting off food and aid to Mariupol is the “epitome of war crime.” The U.N. High Commissioner for Refugees Filippo Grandi said 10 million Ukrainians have been “either displaced inside the country, or as refugees abroad.”

  • The European commission is encouraging EU members to stockpile iodine pills, protective suits and other medicine in case of a nuclear accident in Ukraine. It is also working on the response to potential chemical and biological attacks, the Financial Times reported.

What’s Next: Marek Magierowski, Poland’s ambassador to the U.S., told CNN that Polish Prime Minister Mateusz Morawiecki’s proposal for a United Nations peacekeeping mission in Ukraine is “a very preliminary concept” for consideration by NATO allies.

Janet H. Cho

***

More Contagious Omicron Subvariant Could Cause Uptick in Cases

Dr. Anthony Fauci, the White House’s chief medical advisor, said the BA.2 subvariant of the Omicron coronavirus variant will likely cause an uptick in U.S. cases, but “hopefully we won’t see a surge.” He said the more contagious BA.2 might take over as the dominant variant.

  • Infections from BA.2 don’t appear to be more severe than the original Omicron or evade immune responses from vaccines or prior infections, Fauci told ABC’s This Week. European countries are reporting a fresh wave of cases after relaxing restrictions amid waning vaccine immunity.

  • More than 217 million Americans are fully vaccinated and 96.5 million have been boosted, but that is only 65% of the population and only half of those eligible for boosters. Fauci doesn’t expect a return to strict restrictions, but said “you always have to have the flexibility” to change guidelines.

  • States are shutting down Covid testing sites, including New Hampshire, South Carolina, Utah, and Massachusetts by April 1, the New York Times reported. At-home rapid tests are plentiful, but people don’t always report their results, leaving officials less able to track surges and variants.

  • Shanghai Disney Resort, partly owned by




    Walt Disney
    ,

    is temporarily shutting down starting today after China reported 1,656 new locally transmitted Covid-19 cases on Saturday, up from about 70 cases at the beginning of the month. Ticket-holders will get refunds or exchanges.

What’s Next:




Moderna
,

which is seeking Food and Drug Administration authorization for a fourth dose of its vaccine for all adults, versus




Pfizer
’s

request only for those 65 and older, will host its third annual Vaccines Day on Thursday to discuss the progress of its vaccines pipeline.

Janet H. Cho

***

Consumers Paying More for Food as Inflation Takes Hold

The average prices of household essentials such as food and fuel rose more than 16% in February from a year earlier and are expected to be exacerbated by the war in Ukraine. Consumers report they are paying starkly more now for meat, bread, milk, shelter, gas and utilities.

  • Russia’s invasion of Ukraine took one-quarter of wheat exports, one-fifth the global corn exports, and one-tenth of oil exports offline. More than 30% of Ukraine’s cropland may not be planted this year. Winter wheat that should be harvested in June is also at risk, Barron’s reported.

  • Only a small amount of food consumed in the U.S. is imported, and most of that from Mexico and Canada. But Russia is a main producer of fertilizer and other agricultural chemicals that are now in short supply as planting season approaches.

  • Wheat futures are up 29% since Feb. 25 and corn is up 15%. There is no shortage of wheat in the U.S., but global supply was the tightest in 14 years before the conflict, according to Gro Intelligence, the Washington Post reported.

  • Food inflation benefits stocks of grocers such as




    Kroger

    and




    Albertsons

    because it helps margins, while stocks of restaurant chains such as




    McDonald’s

    and




    Starbucks

    have lagged behind the broader market.

What’s Next: Ukraine is trying to move crop exports through its Western borders because ports are closed. Around 25% to 30% are now heading to Romania, Poland and Slovakia by train, The Wall Street Journal reported. Shipping detours will add 10% to 15% to the cost of crops.

***

Diversified Dividend Stocks Can Help Balance Retirement Portfolios

Dividend stocks can be part of a well-balanced retirement portfolio because they can soften the effects of market volatility, hedge against inflation, and provide income that blunts losses and amplifies gains. But risks include the loss of the payout in tough economic times and lost opportunity from growth stocks.

  • The strategy requires diversification, downturn-resistance, and due diligence, experts told Barron’s. Stephanie Link, chief investment strategist at Hightower Advisors, cited “accidentally high” dividend yields such as




    3M
    .

    The shares dropped 20% over the past year, and now yield 4.1%.

  • Link also points to members of the S&P 500 Dividends Aristocrats, representing companies that have raised dividends in each of the past 25 years. Companies in this category include




    Coca-Cola
    ,




    Emerson Electric
    ,

    and




    Johnson & Johnson
    ,

    which yield 3%, 2.2%, and 2.4%, respectively.

  • David King, the head of income and growth strategies at Columbia Threadneedle Investments, recommends looking at a company’s credit rating or management reputation to see how reliable the dividend is.

  • Jenny Harrington, CEO at Gilman Hill Asset Management, looks at the percentage of earnings that get paid out in dividends to make sure it’s sustainable during downturns, citing




    Verizon Communications
    ,




    IBM
    ,

    and




    Chevron
    .

What’s Next:




Target
’s

board is seen approving a per-share dividend increase in the 20% to 30% range this year as it moves to a 40% payout ratio. In its last fiscal year, the retailer declared dividends of $3.38 a share on earnings of $13.56, a payout ratio of 25%.

Lawrence C. Strauss and Janet H. Cho

***

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***

—Newsletter edited by Liz Moyer, Callum Keown, and Rupert Steiner.

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