Warren Buffett's Berkshire Hathaway to buy Alleghany for $11.6 bn in return to dealmaking

Warren Buffett’s Berkshire Hathaway Inc has struck an $11.6 billion deal to buy Alleghany Corp , the owner of reinsurer TransRe, just weeks after the 91-year-old billionaire bemoaned the lack of good investment opportunities.

Berkshire Hathaway will acquire all outstanding Alleghany shares for $848.02 per share in cash, as per the company statement. 

The transaction represents a 29% premium to Alleghany’s average stock price over the last 30 days and a 16% premium to Alleghany’s 52-week high closing price, the statement read.

Alleghany adds to Berkshire’s already large insurance portfolio, which includes Geico auto insurance, General Re reinsurance and a unit that insures against major and unusual risks.

Buffett is diving deeper into the world of insurance with the Alleghany deal, an industry that has been key to the growth of Berkshire into a conglomerate with a market value of more than $750 billion. 

With Alleghany, Berkshire gains a large property-casualty insurer that also has reinsurance operations through its Transatlantic Holdings Inc. unit. The business is run by Joseph Brandon, who previously used to be chief executive officer of a Berkshire insurer, General Re.

“Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years,” Berkshire CEO Buffett said in the statement. “I am particularly delighted that I will once again work together with my long-time friend, Joe Brandon.”

Buffett had pledged in February to keep more than $30 billion of cash on hand, leaving plenty available for the right acquisition.

The transaction is Berkshire’s largest since its 2016 acquisition of Precision Castparts Corp., according to data compiled by Bloomberg. That deal was valued at $37.2 billion, including debt.

Cash Pile

The Omaha, Nebraska-based billionaire has been seeking ways to put some of his conglomerate’s almost $150 billion pile of cash to work in higher-returning assets, but has struggled to find attractive options given high valuations. 

He’s increasingly turned to stock buybacks, a capital deployment move he largely shunned for decades, and earlier this month he built up Berkshire’s stake in Occidental Petroleum Corp.

The Alleghany deal terms include a “go-shop” period where the insurer can solicit and consider other acquisition proposals for 25 days, the companies said in the statement. 

The transaction, which was unanimously approved by both boards of directors and has the support of 2.5% shareholder and Alleghany chair Jefferson Kirby, is expected to close in the fourth quarter of 2022, subject to customary closing conditions.

Goldman Sachs advised Alleghany on the deal.

Alleghany, led by Brandon, will continue to operate as an independent unit when it joins Berkshire. The two companies share a history of railroads and insurance. 

Alleghany was formed as a holding company for some railroad holdings in 1929 but eventually diversified into insurance, according to its website. Berkshire, which counts insurers from Geico to Gen Re as part of its business, also currently owns railroad BNSF.

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