Berkshire Hathaway pays US conglomerate Alleghany $ 12 billion

Warren Buffett puts Berkshire Hathaway’s $ 147 billion in cash into a $ 12 billion deal to buy Alleghany, a toy-making conglomerate insurance, ending the takeover drought that plagued Berkshire shareholders I let you.

Omaha-based Berkshire owns a range of major insurance companies alongside minority shareholders of companies such as battery maker Duracell and the food group Kraft Heinz, and will pay Allegany $ 848 per share on Monday. Stated.

Founded almost 100 years ago as a railroad company, Alleghany once owned nearly one-fifth of US railroad tracks. Today, various insurance and reinsurance companies, as well as toy makers, funeral supplies makers, hotel developers and custom trailer makers, made $ 1 billion last year.

“Berkshire will be the perfect permanent home for Allegany, the company I’ve been observing for 60 years,” Buffett said, adding that the group “has many similarities to Berkshire Hathaway.” I did.

The price is a 29% premium on Alleghany’s stock price over the last 30 days, a multiple of 1.26 times the company’s book value. With a stock value of $ 11.6 billion, the acquisition is the largest in Berkshire in six years, in cash.

Buffett has been struggling to find a company worth adding to Berkshire’s portfolio in recent years, and the record for the last decade has been a “mixed bag” full of “integration issues.” [and] CFRA Research analyst Kathy Seifert said the transaction was “overpaid.”

Berkshire’s last major acquisition, the $ 37 billion acquisition of Precision Castparts in 2016, resulted in a write-down of $ 9.8 billion. Over the next few years, Berkshire almost endured the frenzy of trading, choosing to buy back tens of billions of dollars in its own stock instead.

“Buying an insurance company that looks a lot like Berkshire seems to work, and Buffett probably needs a win,” said James Shanahan, an analyst at Edward Jones.

Berkshire Hathaway's largest M & A bet, bar graph of the largest acquisition, including debt ($ 1 billion)

A key area of ​​Allegheny’s business is property and property and casualty insurance and reinsurance, which was expanded between 2004 and 2021 under the leadership of Chief Executive Officer Weston Hicks.

Insurers in Berkshire’s portfolio include Geico, one of the largest auto insurers in the United States, and GenRe, a reinsurance company that offers primary insurance companies that cover life, health, property and damage.

Allegheny’s Chief Executive Officer, Joseph Brandon, joined Gen Re in 2012. Buffett said he was pleased with the possibility of working with his “longtime friend” again.

The contract is expected to close in the fourth quarter. Under the terms of the agreement, Alleghany may seek other bids for 25 days. Concessions from Berkshire, who dislike participating in bidding wars, are relatively rare.

Buffett told shareholders in February that he and his right-hand man Charlie Munger were “little excitement” for the acquisition, warning that low interest rates added value to public companies.

Things may have changed in recent weeks as the value of the benchmark S & P 500 has fallen and about one-third of the stocks in the index have fallen by more than 20% from their recent highs. Buffett has found the opportunity to spend more than $ 7 billion on the purchase of Occidental Petroleum shares.

“Suddenly, Berkshire seems to invest about $ 30 billion within a year,” Shanahan added.

Berkshire’s Class A shares, which surpassed $ 500,000 per share for the first time this month, rose 16% this year. This advance, including a 2% increase in trading on Monday afternoon, raised the company’s valuation to $ 770 billion. In contrast to S & P, the 500 fell 7% this year.

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