Ending Warren Buffett's six-year drought of large acquisitions, his conglomerate Berkshire Hathaway recently made a deal to buy insurance company Alleghany Corp. for $11.6 billion. Berkshire agreed to pay $848.02 in cash per share, representing a 25% premium over Alleghany’s March 18 stock price. This came only weeks after the billionaire complained of a lack of good investment opportunities.
Berkshire already has a large portfolio of insurers, which includes auto insurer Geico, reinsurer General Reinsurance Corp., and a unit that insures against unusual risks and major catastrophes. Alleghany, the owner of reinsurer Transatlantic Holdings Inc., will further expand Berkshire's insurance portfolio.
"Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years," said Buffett in a statement. Alleghany will operate as an independent unit of Berkshire.
The acquisition, one of the five largest in Berkshire's history, will help Buffet deploy some of the $146.7 billion of cash and equivalents Berkshire had at the end of 2021.
The transaction is still awaiting regulatory and Alleghany shareholder approvals, but is expected to close in the fourth quarter of 2022. However, Alleghany has a 25-day "go-shop" period in which it can find a better offer if it wishes. If the merger falls through, no break-up fee would be owed.
Berkshire has dozens of businesses, including BNSF Railway, Berkshire Hathaway Energy, and Dairy Queen. Insurance typically generates more than 20% of its operating profit. Berkshire also holds hundreds of billions of dollars in stocks such as Apple ($157.5 billion as of the end of 2021), and has this year invested more than $6.4 billion in Occidental Petroleum Corp.
Alleghany has long held itself out as a "mini-Berkshire," an insurance conglomerate that redeploys some of its excess capital in other businesses, said Cathy Seifert, an Analyst at CFRA Research.
Alleghany's other units include RSUI Group Inc., an underwriter of wholesale specialty insurance; CapSpecialty, which provides specialist cover for small and medium-sized businesses; and Alleghany Capital Corp., which owns several non-insurance businesses that focus on industrial parts, machine tools, hotels, toys, and funeral services, among other things.