Warren Buffett has made a huge return to the dealmaking arena with a mega insurance acquisition.
Berkshire Hathaway Inc. is buying New York-based property and casualty insurer Alleghany Corp. – and its reinsurance operations run through its Transatlantic Holdings Inc. unit – for US$11.6 billion (CA$14.62 billion) in cash, the companies announced on Monday (March 21).
According to a joint statement, Berkshire Hathaway will buy all outstanding Alleghany shares for US$848.02, which is 1.26 times book value as of December 31. It represents a 29% premium to Alleghany’s average stock price over the last 30 days, and a 16% premium to its 52-week high closing price.
Alleghany is run by Joseph Brandon, who used to be the CEO of General Re, a Berkshire Hathaway insurance company.
“Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years,” said Buffett, Berkshire Hathaway’s chairman and CEO. “I am particularly delighted that I will once again work together with my longtime friend, Joe Brandon.”
This is Warren Buffett’s biggest deal since 2016, when Berkshire Hathaway made a US$37.2 billion swoop for Precision Castparts Corp., according to data compiled by Bloomberg. It follows a period when the Omaha, Nebraska-based conglomerate has been “drowning in cash” – almost US$150 billion in total – and Buffett has struggled to find attractive ways to deploy it.
While significant, the Alleghany purchase price of US$11.6 billion in cash only represents 7.9% of Berkshire’s cash stockpile of cash, leaving room for Buffett to mastermind more M&A transactions.
The deal includes a “go-shop” period during which Alleghany can solicit and consider other acquisition proposals for 25 days. It was unanimously approved by both companies’ boards and is expected to close in the fourth quarter of 2022, subject to customary closing conditions.
