The purchase of property-casualty insurer Alleghany is Berkshire Hathaway CEO Warren Buffett’s biggest deal since 2016.
Warren Buffett's Berkshire Hathaway announced it has reached an agreement to buy property-casualty insurer Allegany Corp. for approximately $11.6 billion.
Berkshire, based in Omaha, Nebraska, is acquiring all outstanding shares of New York-based Allegany for $848.02 per share. The transaction, unanimously approved by both boards of directors, is Berkshire CEO Buffett's biggest deal since 2016.
While the price tag may seem steep, it represents a 29% premium to Allegany's average share price over the past 30 days and 16% higher than its 52-week high, which is only 6% higher than the peak price of around $800 per share that Alleghany hit toward the end of 2019, according to The Motley Fool.
The acquisition price represents a multiple of 1.26 times Alleghany's book value as of Dec. 31, 2021, “a multiple that Buffett has increasingly felt comfortable repurchasing Berkshire stock," The Motley Fool's Dan Caplinger writes.
In a statement, Buffett said he has been watching Alleghany closely for over 60 years, and that Alleghany has “many similarities to Berkshire Hathaway."
In addition to operations in insurance and reinsurance, Alleghany has an extensive portfolio of investments in non-insurance companies such as a steel company, toy maker, and funeral services firm. 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.
Berkshire's insurance operations also include Geico, General Re Corp, National Indemnity, Berkshire Hathaway Specialty and USLI.
The acquisition is a reunion in a way, bringing Joseph Brandon, Alleghany's president and CEO, back into the Berkshire fold. Brandon was chair and CEO of Berkshire's General Re from 2001 to 2008 before departing for Alleghany.
“This is a terrific transaction for Alleghany's owners, businesses, customers, and employees," Brandon said 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."
Buffett said he was “particularly delighted" to again work with “long-time friend" Brandon.
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. However, the terms of the agreement allow Alleghany to solicit, consider and accept alternative acquisition proposals during a 25-day “go-shop" period.
AnneMarie McPherson is IA news editor.