Alleghany (Y)

[Enterprising Investor]

Buffett ends drought with $11.6 billion Alleghany insurance purchase (3/21/22)

By Noor Zainab Hussain and Jonathan Stempel

NEW YORK, March 21 (Reuters) - Warren Buffett's Berkshire Hathaway Inc (BRKa.N) has struck an agreement to buy insurance company Alleghany Corp (Y.N) for $11.6 billion, just weeks after the 91-year-old billionaire bemoaned a lack of good investment opportunities.

Alleghany, whose businesses include reinsurer Transatlantic Holdings, would expand Berkshire's large portfolio of insurers, which includes auto insurer Geico, reinsurer General Re and a unit that insures against major catastrophes and unusual risks.

"Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years," Buffett, who has run Berkshire since 1965, said in a statement.

The acquisition, one of the five largest in Berkshire's history, would reunite Buffett with Joseph Brandon, who led General Re from 2001 to 2008 and became Alleghany's chief executive in December.

It would also end Buffett's six-year drought of large acquisitions, and help him deploy some of the $146.7 billion of cash and equivalents his Omaha, Nebraska-based conglomerate had at year end.

Buffett lamented in his Feb. 26 annual shareholder letter that "internal opportunities deliver far better returns than acquisitions," and that little "excites us" in equity markets. read more He pledged to keep $30 billion of cash on hand.

Berkshire agreed to pay $848.02 in cash per Alleghany share, a 25% premium over Friday's closing price.

Alleghany has a 25-day "go-shop" period to find a better offer. Berkshire does not get involved in bidding wars.

The transaction is expected to close in the fourth quarter pending regulatory and Alleghany shareholder approvals. Alleghany would operate as an independent Berkshire unit.

Berkshire "epitomizes our long-term management philosophy," Brandon said in a statement.

Insurance typically generates more than 20% of operating profit at Berkshire, whose dozens of businesses also include the BNSF railroad, Berkshire Hathaway Energy and Dairy Queen ice cream.

Berkshire also invests hundreds of billions of dollars in stocks such as Apple Inc (AAPL.O), and has this year invested more than $6.4 billion in Occidental Petroleum Corp . read more

New York-based Alleghany was founded in 1929 by railroad entrepreneurs Oris and Mantis Van Sweringen.

It was transformed into an insurance and investment operating company under Fred Morgan Kirby II's leadership from 1967 to 1992.

Alleghany is sometimes thought of as a mini-Berkshire, and Buffett said the companies had "many similarities."

Other Alleghany units include RSUI Group, an underwriter of wholesale specialty insurance, and CapSpecialty, a specialty insurer.

Goldman Sachs and law firm Willkie Farr & Gallagher advised Alleghany on the transaction. Law firm Munger, Tolles & Olson advised Berkshire.

https://www.reuters.com/business/finance/berkshire-hathaway-acquire-alleghany-116-bln-deal-2022-03-21/