Multinational conglomerate company Berkshire Hathaway (NYSE: BRK.A) is acquiring insurance and reinsurance firm Alleghany Corporation (NYSE: Y). On Monday morning, Berkshire Hathaway said it had agreed to purchase the company for $11.6 billion. Per a definitive agreement between the two companies, the conglomerate is buying all of Alleghany’s outstanding shares for $848.02 per share in cash. Notably, the deal equals 1.26 X the book value of Alleghany as of the 31st of December, 2021. At the same time, the agreement represents a 16% premium to Alleghany’s average stock price over the past 30 days. The insurance firm has lost 1.61% in the last month.
Expectedly, the transaction will close in the fourth quarter of the year. In the interim, the conglomerate is advised by investment company Goldman Sachs (NYSE: GS) and Willkie Farr & Gallagher.
The acquisition of Alleghany by Berkshire Hathaway came a few weeks after Buffett lamented over the lack of good investment opportunities. In Berkshire’s 2022 annual letter to shareholders, Buffett said only little excites himself and vice chairman Charlie Munger in terms of investments.
Berkshire Hathaway Agrees to Buy Alleghany
Berkshire Hathaway CEO Warren Buffett spoke on the latest investment of acquiring Alleghany. He revealed that he has been observing the insurance company for 60 years. In his opinion, the conglomerate would be a “perfect permanent home” for Alleghany. The CEO of Alleghany Joseph Brandon also commented on the deal. He referred to the agreement as a “terrific transaction for Alleghany’s owners, businesses, customers, and employees.”
Speaking further, Brandon said the agreement is an indication of the quality of the company’s franchises. He added that the transaction results from the hard work, determination, and persistence of the team over the years.
In addition, Chair of the Alleghany Board of Directors Jefferson W. Kirby committed:
“My family and I have been significant shareholders of Alleghany for over 85 years and are proud that our ownership will culminate through this compelling transaction with Berkshire Hathaway. Not only does this deal provide substantial and certain value to stockholders, but it provides a rare opportunity to join forces with a like-minded and highly respected investor and business leader.”
Citing Adam Crisafulli of Vital Knowledge, CNBC wrote:
“This is Berkshire’s largest full acquisition in a while, although the amount being spent (11.6B) is relatively small and certainly doesn’t constitute the type of ‘elephant deal’ Buffett has repeatedly talked about.”
As of the end of 2021, Berkshire’s cash hoard amounted to $146.72 billion. Hence, it is safe to say that the value of the recent deal is relatively small.
Berkshire Hathaway Class A shares are currently at a closing price of $512,991 per share. Data shows that the company has been consistently pulling in gains over the past year.
