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.
  • Looking for more investing ideas like this one? Get them exclusively at Inside Arbitrage. Learn More »

FORTUNE Most Powerful Women Summit - Day 2

Paul Morigi/Getty Images Entertainment

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

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.

  1. 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.
  2. 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.
  3. Lanvin Group, a global luxury fashion group, and Primavera Capital Acquisition Corporation (PV) entered into a definitive business combination agreement.
  4. 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:

  1. The acquisition of Alleghany Corporation (Y) by Berkshire Hathaway (BRK.A, BRK.B) for $11.6 billion or $848.02 per share in cash.
  2. The acquisition of Huttig Building Products (HBP) by Woodgrain for $350 million or $10.70 per share in cash.
  3. 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. On March 24, 2022, shareholders of Apria (APR) approved the company’s merger with Owens & Minor (OMI) at a special meeting of shareholders.
  8. 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:

  1. 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.
  2. 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."

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

A Combination Of Tools And Analysis For Event-Driven Strategies.

For over a decade we built tools to help event-driven investors that focus on strategies like merger arbitrage. The Inside Arbitrage service provides the best combination of tools and analysis for various event-driven strategies like risk arbitrage, spinoffs and SPACs. 

We also track insider purchases and companies that are buying back their own stock while their insiders are making open market purchases. We use these strategies for idea generation and then do detailed work to identify opportunities for our model portfolio and personal portfolios. Click here to learn more.

This article was written by

Asif Suria profile picture
9.53K Followers
Comprehensive tools and detailed analysis for event-driven investors

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.  

I have been an active investor for more than two decades and my background in technology has helped me built tools that inform my investing process, especially as it relates to event-driven strategies that require updated data and processes. The focus on my Inside Arbitrage service is to provide investors with the right combination of tools and analysis to help them take advantage of strategies that can perform well across market cycles.  

Follow

Disclosure: I/we have a beneficial long position in the shares of BRK.A, BRK.B, FHN, TSEM, HTA, TGNA, BRG either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: I have long positions in Berkshire Hathaway (BRK.A, BRK.B), First Horizon (FHN), Tower Semiconductor (TSEM), Healthcare Trust of America (HTA), TEGNA (TGNA) and Bluerock Residential Growth REIT (BRG). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.