Merger Arbitrage Mondays: Berkshire Hathaway Acquires Insurer Alleghany For $11.6 Billion
Summary
- Berkshire Hathaway to acquire all outstanding Alleghany shares for $848.02 per share in cash, for a total equity value of approximately $11.6 billion.
- This is one of the five largest acquisitions in Berkshire's history and it ends Buffett's six-year drought of large acquisitions.
- KKR and Global Infrastructure Partners complete the acquisition of CyrusOne.
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Merger activity decreased last week with three new deals announced and two deals completed.
Alleghany Corporation (NYSE:Y)
Incorporated in 1929 and based in New York, Alleghany Corporation was originally created as a holding company for railroad interests by railroad entrepreneurs Oris and Mantis Van Sweringen. Alleghany operates in three segments: reinsurance, insurance, and Alleghany Capital, providing property and casualty reinsurance and insurance products in the United States and internationally.
Berkshire Hathaway (BRK.A, BRK.B) announced last week that it will acquire all outstanding Alleghany shares for $848.02 per share in cash, for a total equity value of approximately $11.6 billion, representing a premium of 29% to Alleghany’s average stock price over the last 30 days. The transaction aligns well with Berkshire's interests in both insurance and reinsurance.
According to an article from S&P Global, "Another element that makes the $11.6 billion deal attractive to Berkshire is that Alleghany has a brokered reinsurance unit, whereas The Berkshire Hathaway Reinsurance Group, the company's reinsurance arm, sells directly to clients. A quota share with Alleghany's reinsurance company has given Berkshire good insight into the business and increased its broker market distribution, UBS analyst Brian Meredith said in a note."
This deal will also unite Warren Buffett with his 'long time friend', Alleghany CEO Joe Brandon. Brandon was the CEO of General Re from 2001 to 2008 before joining Alleghany as the president of its insurance group in 2011.
This is one of the five largest acquisitions in Berkshire's history and it ends Buffett's six-year drought of large acquisitions.
Largest Insurance Acquisitions by Berkshire (S&P Global Market Intelligence)
After the transaction is completed, Alleghany will operate as an independent unit of Berkshire. The agreement includes a 25-day "go-shop" period, during which Alleghany may solicit other acquisition offers. According to the merger agreement, no break-up fee would be owed to either party if the merger fell through.
Deals In The Works
There was one new deal announced in the Deals in the Works section last week.
On March 21, 2022, Switch (SWCH), a data-center operator, announced that it is exploring strategic options including a sale.
On March 25, 2022, Bloomberg reported that Gulfport Energy (GPOR) had discussed merging with rival oil and gas explorer Ascent Resources. We had added Gulfport Energy as a potential deal in the works on September 23, 2021, when Reuters had reported that, after emerging from bankruptcy earlier in 2021, the company was exploring strategic options including a possible sale. GPOR's price after this announcement was $79.98.
SPAC Arbitrage
There was one new SPAC IPO filed and four new SPAC combinations announced last week.
- Coincheck, a multi-cryptocurrency marketplaces and digital asset exchanges in Japan by verified account market share, and Thunder Bridge Capital Partners IV, Inc. (THCP) entered into a definitive agreement for a business combination.
- HUB Cyber Security (Israel) Limited, a Tel-Aviv based developer of Confidential Computing cybersecurity solutions and services, and Mount Rainier Acquisition (RNER) have entered into a definitive business combination agreement.
- Lanvin Group, a global luxury fashion group, and Primavera Capital Acquisition Corporation (PV) entered into a definitive business combination agreement.
- Ligand Pharmaceuticals Incorporated (LGND) announced the signing of a definitive merger agreement with Avista Public Acquisition Corp. II (AHPA), providing for the spin-off of OmniAb, Inc., Ligand’s antibody discovery business, immediately followed by a merger with a newly formed subsidiary of APAC.
Weekly Spread Changes:
The table below shows weekly spread changes between March 18 and March 25, 2022.
| Symbol | Quote | Acquiring Company | Acquiring Company Quote | CurrentSpread | Last Week Spread | Spread Change Weekly | Deal Type |
|---|---|---|---|---|---|---|---|
| MBII | 1.08 | Bioceres Crop Solutions Corp. (BIOX) | 13.86 | 12.93% | 7.05% | 5.88% | All Stock |
| GFED | 32.12 | QCR Holdings, Inc. (QCRH) | 57.3 | 4.85% | 0.00% | 4.85% | All Stock |
| PTRS | 9.46 | OceanFirst Financial Corp. (OCFC) | 21.02 | 9.73% | 7.56% | 2.17% | Special Conditions |
| TEN | 17.88 | Apollo Global Management, Inc. (APO) | 62.5 | 11.86% | 10.44% | 1.42% | All Cash |
| OCDX | 18.15 | Quidel Corporation (QDEL) | 109.2 | 2.81% | 1.80% | 1.01% | Cash Plus Stock |
| FHN | 23.4 | The Toronto-Dominion Bank (TD) | 81.71 | 6.84% | 8.65% | -1.81% | Special Conditions |
| VNE | 36.84 | Qualcomm Incorporated (QCOM) | 157.97 | 0.43% | 2.35% | -1.92% | All Cash |
| SJR | 31.41 | Rogers Communications Inc. (RCI) | 54.64 | 3.15% | 5.57% | -2.42% | Special Conditions |
| JOBS | 54.05 | Garnet Faith Limited (N/A) | 12.86% | 15.97% | -3.11% | All Cash | |
| AZPN | 157.85 | Emerson Electric Co. (EMR) | 98.51 | 1.36% | 9.48% | -8.12% | Special Conditions |
Deal Statistics:
| Total Number of Deals Closed in 2022 | 45 |
| Total Number of Deals Not Completed in 2022 | 3 |
| Total Number of Pending Deals | |
| Cash Deals | 44 |
| Stock Deals | 14 |
| Stock & Cash Deals | 10 |
| Special Conditions | 8 |
| Total Number of Pending Deals | 76 |
| Aggregate Deal Consideration | $672.22 billion |
New Deals:
- The acquisition of Alleghany Corporation (Y) by Berkshire Hathaway (BRK.A, BRK.B) for $11.6 billion or $848.02 per share in cash.
- The acquisition of Huttig Building Products (HBP) by Woodgrain for $350 million or $10.70 per share in cash.
- The merger of Emclaire Financial Corp. (EMCF) and Farmers National Banc (FMNB) for $105 million in a cash or stock deal. Under the terms of the agreement, each shareholder of Emclaire may elect to receive either $40.00 per share in cash or 2.15 shares of Farmers’ common stock, subject to an overall limitation of 70% of the shares being exchanged for Farmers’ shares and 30% for cash.
Deal Updates:
- On March 21, 2022, Preferred Apartment Communities (APTS) announced the expiration of the 30-day “go-shop” period set forth in the previously announced definitive merger agreement with Blackstone Real Estate Income Trust.
- On March 21, 2022, Activision Blizzard (ATVI) announced that the special meeting of stockholders, to consider and vote on a proposal to adopt the Agreement and Plan of Merger with Microsoft Corporation (MSFT), will be held on April 28, 2022.
- On March 22, 2022, Guaranty Federal Bancshares (GFED) stockholders approved the previously announced acquisition of the company by QCR Holdings (QCRH) at a special shareholders meeting.
- On March 23, 2022, in connection with the Merger and the FTC review process, Intersect ENT (XENT) and Hemostasis have agreed on the material terms of a Sale and Purchase Agreement, under which Hemostasis would agree to acquire the Fiagon Business from Intersect ENT. Intersect ENT and Medtronic (MDT) also anticipate providing certain transition services in connection with the sale of the Fiagon Business. The consummation of the sale of the Fiagon Business to Hemostasis would be expressly cross-conditioned on the closing of the Merger.
- On March 23, 2022, Guaranty Federal Bancshares (GFED) announced that QCR Holdings (QCRH) has received all of the regulatory approvals required to complete its previously announced merger with the company. The Merger remains subject to, the satisfaction of other customary closing conditions and is anticipated to close on April 1, 2022.
- On March 24, 2022, Veoneer (VNE) and QUALCOMM Incorporated (QCOM) have agreed that the closing of the merger will take place on April 1, 2022. Upon the closing of the merger, VeoSneer's new owners, SSW, plan to appoint Jacob Svanberg, currently Senior Vice President Lidar Product Area and Corporate Development, as Veoneer's new CEO.
- On March 24, 2022, shareholders of Apria (APR) approved the company’s merger with Owens & Minor (OMI) at a special meeting of shareholders.
- On March 25, 2022, Citizens Financial Group (CFG) and Investors Bancorp (ISBC) announced receipt of regulatory approval from the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency to complete the previously announced acquisition of Investors. The acquisition is anticipated to close by mid-April 2022..
Closed Deals:
- The acquisition of BioDelivery Sciences International (BDSI) by Collegium Pharmaceutical (COLL) on March 22, 2022. It took 36 days for this deal to be completed.
- The acquisition of CyrusOne (CONE) by KKR and Global Infrastructure Partners on March 25, 2022. It took 130 days for this deal to be completed.
Top 10 deals with largest spreads:
| Symbol | Announced Date | Acquiring Company | Closing Price | Last Price | Closing Date | Profit | Annualized Profit |
|---|---|---|---|---|---|---|---|
| ATVI | 01/18/2022 | Microsoft Corporation (MSFT) | $95.00 | $79.6 | 06/30/2023 | 19.35% | 15.38% |
| CHNG | 01/06/2021 | UnitedHealth Group Incorporated (UNH) | $25.75 | $21.97 | 06/30/2022 | 17.21% | 66.81% |
| MBII | 03/16/2022 | Bioceres Crop Solutions Corp. (BIOX) | $1.22 | $1.08 | 09/30/2022 | 12.93% | 25.38% |
| JOBS | 06/21/2021 | Garnet Faith Limited (N/A) | $61.00 | $54.05 | 06/30/2022 | 12.86% | 49.93% |
| SAFM | 08/09/2021 | Cargill and Continental Grain Company (N/A) | $203.00 | $180.54 | 06/30/2022 | 12.44% | 48.31% |
| BRG | 12/20/2021 | Blackstone Real Estate (N/A) | $29.85 | $26.59 | 06/30/2022 | 12.26% | 47.61% |
| TEN | 02/23/2022 | Apollo Global Management, Inc. (APO) | $20.00 | $17.88 | 12/31/2022 | 11.86% | 15.57% |
| ATC | 07/01/2021 | MKS Instruments, Inc. (MKSI) | $24.79 | $22.41 | 03/31/2022 | 10.62% | 1291.95% |
| WLL | 03/07/2022 | Oasis Petroleum Inc. (OAS) | $95.57 | $87.06 | 12/31/2022 | 9.78% | 12.84% |
| PTRS | 11/04/2021 | OceanFirst Financial Corp. (OCFC) | $10.38 | $9.46 | 06/30/2022 | 9.73% | 37.76% |
Conclusion:
Multiple deals received required approvals as we come closer to the end of the first quarter of 2022. SPAC IPOs continue to dwindle with only one SPAC IPO filed last week. SPAC business combinations on the other hand kept up pace with four new combinations announced last week. One of the SPAC business combinations announced last week is structured as a 'Reverse Morris Trust'. Ligand Pharmaceuticals (LGND) signed a definitive merger agreement with Avista Public Acquisition Corp. II (AHPA), providing for the spin-off of OmniAb, which will be merged with a newly formed subsidiary of APAC. The combined company will be led by Ligand’s President, Matt Foehr, and will be renamed “OmniAb, Inc."
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I am an entrepreneur and investor with a focus on event driven strategies including merger arbitrage, spinoffs, (legal) insider trading, buybacks and SPACs. I was one of the earliest contributors on Seeking Alpha and started publishing here in 2005. For more than a decade I have been writing every week about M&A and interesting insider transactions. My work has been mentioned in Barron's, Dow Jones, BNN Bloomberg and other publications.
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