Berkshire Hathaway to acquire Alleghany in $11.6B all-cash transaction

Mario Tama/Getty Images News

• Berkshire Hathaway (NYSE:BRK.A) and Alleghany (NYSE:Y) have entered into a definitive agreement wherein the former will acquire all outstanding Alleghany shares for $848.02/share in cash.
• The transaction, scheduled to close in 4Q22, represents a total equity value of ~$11.6B and a multiple of 1.26 times Alleghany’s book value as of Dec.31, 2021 and a 29% premium to Alleghany’s average stock price over the last 30 days.
• Post closure, Alleghany will continue to operate as an independent subsidiary of Berkshire Hathaway.
• Under agreement terms, Alleghany may actively solicit and consider alternative acquisition proposals during a 25-day go-shop period.
• Last week, Berkshire expanded its Occidental stake to 14.6%.
• In early March, SA Contributor Growth at a Good Price stated that Berkshire Hathaway is a safe bet for an uncertain market.
• While in the past 6-months the stock has garnered 25% returns for shareholders, it is currently trading close to its 52-week high levels; SA Authors have equal Strong Buy and Buy rating for the stock.

Comments

[robertfsennott12gmail.com]

The go-shop clause shows that Warren wants to be fair and in some ways respects the folks at Y and their desire to always create as much value for all stakeholders alike...

[Adambombfx]

Just a MONSTER !!!

seekingalpha.com/...

[josephaoppenheim]

Insurance is the major core competency of Berkshire, so, I like the acquisition. So, likely some synergies exist and worth the cost.

[dlevine007]

I’m fine with this acquisition - Buffet knows the company well and Berkshire is generating a ton of cash - they can pay this off in a few quarters out of earnings. I look at it as a good alternative to the buyback now that Berkshire shares are not cheap anymore. I think Brkb can get to $380-400 this year. At that price I might “create a little dividend” for myself.

[Alexander Steinberg]

As far as I remember Alleghany's ROE is about 8%. Being acquired at roughly 30% premium and run independently, should produce something close to a 5% return on BRK capital. All non-insurance businesses are tiny for BRK. No noticeable synergies. Am I missing something?

[jack84]

@Alexander Steinberg IDK but BRK's capital strenght could add something to Alleghany's ROE

[Alexander Steinberg]

@jack84 Might add some incremental return only because Y is well-rated. Here is another perplexing detail: Y has been trading close to its book value forever. Buffett could have done or at least propose the same deal any time. Why now?

[User 49655511]

@Alexander Steinberg

The "why now" is a good question.

I'd guess rising interest rates?

[robertfsennott12gmail.com]

Sold my company to Alleghany in July of 1996 in a pooling of interest that was a tax-free stock swap with a very low basis. Interestingly, Y then spun out it's a Chicago Title & Trust, for a 3 for one split at $52X3- 156 DOLLARS PER SHARE AND THEN Fidelity National-FNF two years later bought Chicago at a very large premium... This is a bittersweet end to a life-changing event for my family and former partner's families. I am going to average into the B shares to radically expand upon my existing Berkshire position so I can still continue to be from a financial sense be genetically related to the company that was started back in 1929 and maintained its single letter symbol all these years.

Hats off to the Kirby family and John Burns the Ceo that acquired my company - Market Intelligence. Looks like the ultimate smart money just bought from old smart money...

[Finding Your Retirement]

it's amazing how the SEC blocks newspaper companies from merging but approves this and amazon buying MGM

[User 49655511]

@Finding Your Retirement

Your observation is an interesting one. Why do think they are similar and dissimilar?

[Michael Dolen]

Oh no. Forced capital gains. Picked up during depths of covid crash. Wish we could get paid in $BRK.B instead.

[christof2014]

@Michael Dolen I wish it was a stock deal as well

[Confoundedinterest]

@Michael Dolen ditto!

[devowevo]

@Michael Dolen You have a fantastic gain. Be happy. Hopefully you have some losses you can use against your gains. If not, nothing wrong with paying some taxes when you make money.

[Kingkang80]

Still utterly surprised by the '25-day go-shop period.' WB never does that. Usually gives what....24 hrs for a deal and that's it. Not sure why he allowed it this time.....even though he may already KNOW that they won't get a better deal than what he provided.

[simplevalue274]

@Kingkang80 I agree very strange or should have massive break breakup fee like 3 bn.

[Byron Clarke]

@Kingkang80 It's a sellers' market, and BRK doesn't do 'hostile' takeovers. So if the sellers' insist on it, why not? I would be surprised if BRK bid a higher price in response to another offer.

[Michael Dolen]

@Kingkang80 Nothing to be surprised about. Go-shop periods are put in as a means of preventing future litigation. Think about it... $Y shareholders could sue, alleging the deal was non-competitive and in the best interest of management but not shareholders. You always want go-shop periods, as to deter such things in the future after deal closes.

[Jonatthan]

There he goes
My uncle buffet!!!!!
He’s surprises me yet again …
You think he got new doctor and new meds ?
As long as he makes me more money I’m with him …..

[nate311]

@Jonatthan you might learn to spell your uncle's name correctly...it ends with 2 "t's"...

[Fliuj]

Cheap elephant and good quality. BNSF buy price looks ridiculously low now 10 years + later. The same will be seen with Y price in less than 10 years. Im more resolute with my All In BRK B strategy going forward.

[Lorem Ipsum DSA]

So what does Y have that BRK does not? Sounds like buying $1 for $1.26.

[Ern McCracken]

@Lorem Ipsum DSA I suspect the opportunity to manage the float. They have a lot of bonds.

[Lorem Ipsum DSA]

@Doobanator That's the thing... BRK has more cash than they can handle already, now they want to get more at a premium? What am I missing?

[Desmater]

@Lorem Ipsum DSA Maybe they are preparing for higher interest rate environment. Doesn’t hurt to have insurance and manpower knowing how to manage those things.

[22thoroughbred]

I heard the board of Alleghany said “NO DEAL” until the offer was above $848 and held out til Buffet came back at $848.02

[nate311]

@22thoroughbred fr whom?

[22thoroughbred]

@nate311 facetious, .02

[nate311]

@22thoroughbred oh...well, in that case, it must unquestionably be true.

[Oakland2020]

Terrific deal within their circle of competence. The biggest elephant has been berkshire itself and Buffett has always been too conservative with buybacks. The overall result speaks for itself. With the huge energy problem in the European continent, except probably in Norway, berkshire looks even better now. Happy holder!

[FirstFIREWealth]

Too much money imo...should have bought them a while back...

[nate311]

@FirstFIREWealth should've bought them a while back? then he should've bought apple, burlington and mid-american a while back too, LOL.

[unlessx]

Oh my ghosh!Making such a freak deal is not good of $848.02 in cash.Is very bad

[nate311]

@unlessx what does buffett know...you know best...

[User 49655511]

@unlessx

What part of the deal do you think isn't good?

[true alpha]

Buying an insurer he has looked at for 60 years, at above book value and with zero performance over the past 5 years. Sorry if I can’t get that excited. Hopefully this time round they have actually checked the whole balance and off-balance sheet to avoid the derivatives drama he had with General Re. People with just a bit of insight knew General Re had a toxic derivatives book. Except…

[christof2014]

@true alpha Y is a good company. It is where Berkshire was in the early to mid 1980s. There is no drama with Y. They are about compounding and repetition.

[UncleLongHair]

@true alpha Total assets of $32B, total investments of $21B, book value around $9B and they're paying $11.6B. This is essentially a "bolt on" acquisition to their reinsurance business. Y has not been a good performer for about 10 years. Maybe Berkshire thinks that they can improve it by acquiring it. That didn't go so well with Gen Re.

[Fliuj]

@true alpha This is the trick, no market performance sometimes mean undervaluation. Next target could be Manulife.

[User 49655511]

finally!

[christof2014]

Been a Y shareholder since 2020. Just added shares in Feb @ $590. Was planning to buy more.

Looking at a 48% ROI overall. Not too shabby. Just wish it was a stock deal and not cash.

[devowevo]

@christof2014 Buffett doesn't do stock deals anymore. He has stated as much, knowing that his stock always grows over time, so cash is better option.

[unlessx]

@christof2014 credible

[User 49781652]

@christof2014 Simple. Just buy BRK.B stock with your cash from the deal.

[Prudencepreferred]

all about interest rates