Time is up tomorrow (Friday, Australian time) for the $US11.6 billion bid for Alleghany Corp from Warren Buffett’s Berkshire Hathaway.
The bid – the biggest deal for Buffett (outside of $US51 billion in share buybacks in 2020 and 2021) for six years – was announced on March 21 and Alleghany had 25 days to find a higher bidder, while also keeping in mind that if one was found, Berkshire has five days to reveal if it will make an offer higher than the one it has on the table. Buffett has already indicated that would be highly unlikely.
Alleghany’s bank, Goldman Sachs has spoken to 31 potential bidders, an SEC filing from Alleghany late Monday revealed. With no counter bids, it would seem with a day to go there are no other offers.
The document was a proposed version of the proxy Statement for the meeting to approve the Berkshire deal when a date can be given after various official approvals have been granted and the 25-day period for other possible bidders to emerge, is over (at 11.59pm on April 14 New York time or after 2pm Friday, Sydney time).
The filing also told a great story on how Buffett forced Alleghany and Goldman Sachs to bend to his will over the price and Goldman’s $US27 million fee for advising Alleghany.
The takeover documents have already revealed how Berkshire cut its $US850 a share price by $US1.98 a share to force Alleghany shareholders to bear all the cost of using Goldman Sachs as their advisors.
Buffett and Berkshire (who were advised by the LA law firm of Berkshire Vice chair Charlie Munger) took just two weeks to put together and agree to the $US11.6 billion bid.
There was no demand for due diligence by Berkshire, the offer of the 25-day ‘go shop’ period so find a higher offer if they could but nothing extra for Goldman Sachs. It was a sort of walk in, walk out price offered by Buffett.
Alleghany said in the filing that its CEO Joseph Brandon had dinner with Buffett in New York City on March 7, where after some “casual conversation” Buffett offered $US850 per share in cash for the company, less the fee for Goldman Sachs.
The filing says five days later, Brandon and Alleghany Chairman Jefferson Kirby met Buffett in Omaha, Nebraska, where Kirby asked Buffett to make a higher offer, pay Goldman’s $US27 million fee, or use Berkshire stock to fund part of the purchase.
“Mr. Buffett reiterated the terms of his original offer, indicating firmly he did not intend to change his position on those points,” the filing said.
Berkshire ultimately agreed to pay $US848.02 a share, with the $US1.98 difference from $US850 funding Goldman’s fee.
Brandon is well known to Buffett, having run Berkshire’s huge General Re reinsurance business from 2001 to 2008, so he would have known his former boss’ attitude to wall Street firms.
Buffett in fact has long objected to the costs of doing business on Wall Street and in every deal has shied away from using a bank for advice. Buffett has used Munger’s law firm or in some cases, a former Goldman Sachs banker called Byron Trott whom Buffett says is the only banker he trusts. It does use banks, especially Goldman Sachs in bond raisings but not for acquisitions.
By sometime Friday afternoon or evening we should know if Goldman Sachs has managed to round up a higher offer. If it has Berkshire will have until 11.59pm on Tuesday, April 19 to respond.
The absence of a termination fee if a higher and successful offer appears makes it both harder for Berkshire, but easier because walking away will be almost cost free. Alleghany will be stuck with all the costs of the merger documents and Goldman’s fee.
The Alleghany purchase is expected to close in the fourth quarter, pending regulatory and Alleghany shareholder approvals. That could make for a rather taut easter for all concerned, of relief if no higher bidders can be found.
