Warren Buffett’s Berkshire Hathaway is spending more than $US11 billion buying a rival insurer that looks a lot like Berkshire, even to the point where the CEO worked for Buffett years ago.
Berkshire announced Monday that it had agreed to buy New York-based insurance company Alleghany Corp for $US11.6 billion, a company Buffett said in the announcement he had been watching for 60 years.
Alleghany is the owner of reinsurer Transatlantic Holdings and will add to Berkshire’s large portfolio of insurers, which includes auto insurer Geico, reinsurer General Re, National Indemnity (one of Buffett’s key buys) and a unit that insures against major catastrophes and unusual risks.
The acquisition is in fact one of the five largest in Berkshire’s history and will use up some of the more than $US146 billion cash float the company had on its books at the end of December.
The deal will reunite Buffett with Joseph Brandon, who led General Re from 2001 to 2008 and became Alleghany’s chief executive in December.
It would also end Buffett’s six-year drought of large acquisitions and will see Berkshire add a number of other businesses to its list of holdings.
Berkshire agreed to pay $US848.02 in cash for each Alleghany share, representing a 25% premium over Friday’s closing price. Alleghany would operate as an independent unit of Berkshire but as part of its insurance group overseen by senior executive Ajit Jain.
Like Berkshire, Alleghany is an insurance conglomerate that redeploys some of its excess capital in other businesses.
Alleghany’s other units include RSUI Group, an underwriter of wholesale specialty insurance, and CapSpecialty, which provides specialist cover for small and medium-sized businesses.
Its subsidiary, Alleghany Capital Corp owns several non-insurance businesses, including companies that focus on industrial parts, machine tools, hotels, toys and funeral services.
The market loved the news that Berkshire Hathaway was back in big deal mode after six years of standing on the sidelines and sent the shares up 2.3% to a new record close of $US525,000.
