Berkshire Hathaway is finally taking advantage of its huge cash pool for a significant acquisition: Warren Buffett’s holding company today announced the acquisition of insurance company Alleghany for $ 11.6 billion in cash.
Just a month ago, Buffett wrote in a letter to shareholders – as he has said several times in recent years – that the reason Berkshire is not spending cash on substantial acquisitions is that it is having a hard time finding suitable opportunities. Accordingly, the Berkshire box office has grown to more than $ 144 billion. Since then enough water has probably passed through some river in Omaha, and the opportunity has been found.
The current purchase will be made at a value of $ 848.2 per share – a 25% premium to Algani’s closing price on Friday, $ 676.75. The Berkshire announcement said the deal (to be completed in the fourth quarter) reflects a 16% premium to the average price of Algani shares over the past 30 days and represents a multiple of 1.26 on book value as of December 31, 2021.
“Berkshire will be the perfect permanent home for Algani, a company I have followed closely for the past 60 years,” said Buffett, CEO and chairman of Berkshire. Insurance company CEO Joseph Brandon, who previously headed Berkshire-owned General Re, praised the move: “It’s a wonderful deal for Algani’s shareholders, businesses, customers, and employees.”
Brandon further noted that “the value of this transaction reflects the quality of the company, and is the result of hard work, consistency, and determination, of elegant employees for decades.”
As mentioned, in his most recent annual letter to shareholders, from February, Buffett said he and Vice President Charlie Manger did not find much “exciting stuff” in terms of possible major acquisitions. “Although the amount paid is relatively small, and certainly does not constitute the ‘giant deal’ that Buffett often talked about,” said Adam Crispoli of Vital Knowledge.
The deal reports a week after Berkshire’s A-share broke records and closed above $ half a million for the first time – the stock will open the week at $ 512,991.