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 action. This represents premiums of 29% to Alleghany’s average price over the past 30 days and 16% to its 52-week closing high. The price paid by Berkshire is also 26% higher than Alleghany’s book value as of December 31, 2021.
Berkshire Hathaway Chairman and CEO Warren Buffett said in a press release, “Berkshire will be the perfect permanent home for Alleghany, a business I have watched closely for 60 years. Throughout 85 years, the Kirby family has created a business that has many similarities. at Berkshire Hathaway. I’m especially excited to be working again with my long-time friend, [Alleghany CEO] Joe Brandon.”
Key points to remember
- 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 price and book value.
- The deal is expected to close in the fourth quarter of 2022, subject to Alleghany shareholder and regulator approval.
- Alleghany is also in a shopping period where she can look for a better deal.
- Alleghany reported net income of $1.035 billion in 2021.
- In addition to insurance, Alleghany, like Berkshire, has stakes in various unrelated businesses.
Closing of the transaction
The deal is expected to close in the fourth quarter of 2022. Although it has been unanimously approved by the boards of directors of both companies, it is subject to approval by Alleghany shareholders and various regulatory bodies. regulations. Additionally, Alleghany now has a 25-day period to seek a superior offer from another potential buyer.
Shares of Alleghany rose about 25% in morning trading on March 21, 2022. They ranged close to Berkshire’s proposed purchase price.
About Alleghany Corporation
Alleghany’s core business is reinsurance and property and casualty insurance. Alleghany’s P&C subsidiaries include: Transatlantic Holdings, Inc. (TransRe), a leading global reinsurer; RSUI Group, Inc., which underwrites wholesale specialty insurance coverage; and CapSpecialty, Inc., an underwriter of specialty property and casualty insurance coverage.
Alleghany’s subsidiary, Alleghany Capital Corporation, owns and supports a diversified portfolio of eight non-financial companies. Its investments are classified as industrial enterprises or non-industrial enterprises.
Industrial companies cover industries that include: machine tools; trailers and custom 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.
Non-industrial activities include: design, engineering and services associated with the biopharmaceutical and life sciences markets; project management services for data center, technology and other industry customers; toys and musical instruments; and hotel management and development.
Strategic fit for Berkshire
The Alleghany acquisition will strengthen Berkshire’s position in the insurance industry, which Buffett cited in his 2021 annual letter as one of his company’s “big four” that deliver most of its value . He said: “The insurance business is made to order for Berkshire. The product will never be obsolete and sales volume will generally increase with economic growth and inflation. Additionally, integrity and capital will be always important. Our company can and will behave well.”
For the year 2021, Berkshire’s insurance business generated $5.5 billion in net profit after tax. This represented 21.0% of its total after-tax net income of $26.1 billion from all of its operating subsidiaries (i.e., excluding gains or losses on its investment portfolio ).
In 2021, Alleghany reported after-tax net profit attributable to shareholders of $1.035 billion. Adjusted net income was $619 million. Adjusted net income excludes, on an after-tax basis: the change in fair value of equity securities; net realized capital gains; changes to the allowance for credit losses on available-for-sale securities; and amortization of intangible assets.
For Alleghany Capital, total profit before tax in 2021 was $291.7 million and adjusted profit before tax was $333.2 million.