Berkshire Hathaway (BRK.A) Buys Insurer Alleghany Corporation (Y)

Berkshire to pay $11.6 billion, a premium of 29% to recent average price

Berkshire Hathaway Inc. (BRK.A, BRK.B) announced on March 21, 2022, that it is acquiring insurance company Alleghany Corporation (Y) for $11.6 billion, paying $848.02 in cash per share. This represents premiums of 29% to Alleghany's average price over the past 30 days and 16% to its 52-week high closing price. The price Berkshire is paying is also at a 26% premium to Alleghany's book value as of Dec. 31, 2021.

Berkshire Hathaway Chairman and CEO Warren Buffett stated, in a press release: "Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years. Throughout 85 years the Kirby family has created a business that has many similarities to Berkshire Hathaway. I am particularly delighted that I will once again work together with my long-time friend, [Alleghany CEO] Joe Brandon."

Key Takeaways

  • Berkshire Hathaway (BRK.A, BRK.B) plans to acquire insurer Alleghany Corporation (Y).
  • The deal will cost $11.6 billion and is priced at premiums to Alleghany's recent share prices and book value.
  • The deal is slated to close in the fourth quarter of 2022, subject to approval by Alleghany's shareholders and regulators.
  • Alleghany also is in a go shop period in which it can seek a better deal.
  • Alleghany reported net income of $1.035 billion in 2021.
  • In addition to insurance, Alleghany, like Berkshire, has holdings in various unrelated businesses.

Closing the Deal

The deal is expected to close in the fourth quarter of 2022. While it has been approved unanimously by the boards of directors of both companies, it is subject to approval by Alleghany's shareholders and by various regulatory agencies. Moreover, Alleghany now has a 25-day go shop period in which it can seek a superior deal with a different potential purchaser.

Shares of Alleghany were up by about 25% in morning trading on March 21, 2022. They reached a range near Berkshire's proposed purchase price.

About Alleghany Corporation

Alleghany's core business is property and casualty reinsurance and insurance. Alleghany's property and casualty subsidiaries include: Transatlantic Holdings, Inc. (TransRe), a leading global reinsurer; RSUI Group, Inc., which underwrites wholesale specialty insurance coverages; and CapSpecialty, Inc., an underwriter of specialty casualty and surety insurance coverages.

Alleghany's subsidiary Alleghany Capital Corporation owns and supports a diverse portfolio of eight non-financial businesses. Its investments are categorized as either industrial businesses or non-industrial businesses.

The industrial businesses span industries that include: machine tools; custom trailers and truck bodies; structural steel fabrication; precast concrete; products and services for the funeral and cemetery industries; and injection molded and thermoformed parts for various end markets.

The non-industrial businesses include: design, engineering, and related services to the biopharmaceutical and life sciences markets; project management services for clients in the data center, technology, and other sectors; toys and musical instruments; and hotel management and development.

Strategic Fit for Berkshire

Acquiring Alleghany will bolster Berkshire's position in the insurance business, which Buffett cited in his 2021 annual letter as being one of his company's "four giants" that deliver most of its value. He stated: "The insurance business is made to order for Berkshire. The product will never be obsolete, and sales volume will generally increase along with both economic growth and inflation. Also, integrity and capital will forever be important. Our company can and will behave well."

For full year 2021, Berkshire's insurance business contributed $5.5 billion of net earnings after tax. This was 21.0% of its $26.1 billion in total net earnings after tax from all its operating subsidiaries (i.e., excluding gains or losses on its investment portfolio).

In 2021, Alleghany reported net earnings after tax attributable to shareholders of $1.035 billion. Adjusted net earnings were $619 million. Adjusted net earnings exclude, on an after-tax basis: the change in the fair value of equity securities; net realized capital gains; the change in allowance for credit losses on available for sale securities; and the amortization of intangible assets.

For Alleghany Capital, total earnings before tax in 2021 were $291.7 million, and adjusted earnings before tax were $333.2 million.

Article Sources

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  1. Berkshire Hathaway Inc. "Berkshire Hathaway to Acquire Alleghany Corporation for $848.02 per Share in $11.6 Billion Transaction."

  2. Alleghany Corporation. "Joseph P. Brandon."

  3. Alleghany Corporation. "Operating Companies."

  4. Investopedia. "Buffett's 2021 Annual Letter Names 'Four Giants'."

  5. Berkshire Hathaway Inc. "2021 Annual Report," Page K-32.

  6. Alleghany Corporation. "Alleghany Corporation Reports 2021 Fourth Quarter and Full Year Results."

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