Warren Buffett has dipped into Berkshire Hathaway’s $ 150bn cash pile with a $ 12bn deal for Alleghany, an insurance-to-toy manufacturing conglomerate.
Omaha-based Berkshire, which includes a series of large insurers alongside other companies such as Duracell, and minority stakes in others including Kraft Heinz, said on Monday it would pay $ 848 per share for Alleghany.
Alleghany was founded almost 100 years ago as a railway company and at one point owned almost a fifth of US track. These days, it owns a range of insurance and reinsurance companies as well as a toy producer, a funeral products maker, a hotel developer and a manufacturer of custom trailers. It produced profits of $ 1bn last year.
Buffett said that “Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years”, adding that the group “has many similarities to Berkshire Hathaway”.
The price is a 29 per cent premium to Alleghany’s share price over the past 30 days and is a multiple of 1.26 times the company’s book value. With an equity value of $ 11.6bn, the deal is Berkshire’s biggest in six years, according to Dealogic data, and will be paid for in cash.
Alleghany’s chair Jefferson Kirby – whose family have been significant shareholders since the 1930s – said the deal was “a rare opportunity to join forces with a like-minded and highly respected investor and business leader”.
A key area of Alleghany’s operations is property and casualty insurance and reinsurance, expanded under the leadership of chief executive Weston Hicks between 2004 and 2021.
Alleghany acquired small business-focused CapSpecialty in 2002 and RSUI in 2003, before adding New York-based TransRe, a big global reinsurer, in 2012.
Among the insurance companies in Berkshire’s portfolio are Geico, one of the largest car insurers in the US, and reinsurer Gen Re – which provides cover to primary insurers across life, health, property and casualty.
Alleghany’s chief executive Joseph Brandon joined from Gen Re in 2012. Buffett said he was delighted at the prospect of working again with his “longtime friend”.
The deal is expected to close in the fourth quarter. Under the terms of the agreement, Alleghany has 25 days where it may seek other bids.
Buffett talked about Berkshire’s near-record cash pile in his latest annual letter published in February.
He said that he and right-hand man Charlie Munger had found “little that excites us” as acquisition targets and warned that low interest rates had inflated the value of public companies.