Warren Buffett’s Berkshire Hathaway said it reached an agreement with Alleghany Corp. to buy the New York-based property and casualty insurer for about $11.6 billion.
Omaha, Nebraska-based Berkshire will acquire all outstanding Alleghany shares for $848.02 per share in cash in a transaction unanimously approved by both boards of directors. Berkshire said the acquisition price represents a multiple of 1.26 times Alleghany’s book value at Dec. 31, 2021.
The deal brings Joseph Brandon, Alleghany’s president and CEO, back into the Berkshire family. From 2001-2008, Brandon was chair and CEO of Berkshire Hathaway’s General Re Corp. He joined Alleghany as executive vice president in 2012 and succeeded Weston Hicks as president of Alleghany in April last year. Buffett said he was “particularly delighted” to again work with “long-time friend” Brandon.
“This is a terrific transaction for Alleghany’s owners, businesses, customers, and employees,” said Brandon, in a statement. “As part of Berkshire Hathaway, which epitomizes our long-term management philosophy, each of Alleghany’s businesses will be exceptionally well positioned to serve its clients and achieve its full potential.”
Alleghany will continue to operate as an independent entity. The deal is set to close in the fourth quarter after regulatory approvals and approval by Alleghany stockholders.
In a statement, Berkshire CEO Buffett said he has been watching Alleghany closely for over 60 years, and that Alleghany “has many similarities to Berkshire Hathaway.”
In addition to General Re, Berkshire’s reinsurance and specialty businesses include National Indemnity, Berkshire Hathaway Specialty and USLI, among others. Alleghany’s reinsurance and specialty operations include TransRe, RSUI and CapSpecialty. Berkshire’s insurance operations also include personal lines giant GEICO.
Like Berkshire, in addition to operations in insurance and reinsurance, Alleghany has an extensive portfolio of investments in non-insurance companies. The company was started in 1929 will a focus on real estate in Cleveland before entering the railroad business. When its founders died, Robert Young and Allan Kirby purchased the company and focused on an acquired mutual funds business to recover from the effects of the Great Depression. Alleghany sold its stake in the mutual funds business in 1984 and used the proceeds to get into insurance. The Kirby family has remained a part of Alleghany.
“My family and I have been significant shareholders of Alleghany for over 85 years and are proud that our ownership will culminate through this compelling transaction with Berkshire Hathaway. Not only does this deal provide substantial and certain value to stockholders, but it provides a rare opportunity to join forces with a like-minded and highly respected investor and business leader,” said Jefferson W. Kirby, chairman of the Alleghany Board of Directors.
This would mark the largest deal for Berkshire since 2016, according to reports. It comes about a month after Buffett, in his annual letters to shareholders, said: “Today, internal opportunities deliver far better returns than acquisitions.” Another option to increase value in investments with Berkshire, Buffett explained, would be to buy “non-controlling, part-interests in businesses,” but here he also added that “we find little that excites us.”
The deal also come after a handful of Berkshire shareholders recently recommended Buffett be replaced as chairman and report on environmental, social, and governance issues. Days later, the share price of Berkshire Hathaway reached $500,000 for the first time.
Under the terms of the definitive merger agreement, Alleghany may actively solicit and consider alternative acquisition proposals during a 25-day “go-shop” period. Alleghany has the right to terminate the merger agreement to accept a superior proposal, subject to the terms of the merger agreement.
Goldman Sachs & Co. LLC is serving as financial advisor and Willkie Farr & Gallagher LLP is serving as legal advisor to Alleghany. Munger, Tolles & Olson LLP is serving as legal advisor to Berkshire Hathaway.
Related:
Berkshire’s GEICO Posts 2021 Profit Much Lower Than 2020
Topics Mergers & Acquisitions
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