A year ago, Berkshire Hathaway purchased insurer Alleghany for $11.6 billion—1.26 times book value and 12 times projected 2022 earnings. Given that insurance stocks have rallied since the date of the deal last year—March 21, 2022—it’s very likely that Berkshire shelled out less than book value for Alleghany’s insurance business and got a very good bargain, contends an article in Barron’s.
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At the time of the sale, Barron’s maintained that the acquisition was a “steal,” as the deal also included Alleghany’s non-insurance operations which generated $350 million in profits in 2022. Buffett had long eyed the company and offered Alleghany CEO Joe Brandon $850 a share in cash over dinner in NYC. A few weeks later, Brandon and the Alleghany board accepted Buffett’s offer, and the deal was finalized after a “go-shop” period failed to produce any rival offers, the article details. In his annual letter to shareholders, Buffett wrote that Berkshire’s acquisition of Alleghany was a “positive development” for the company and that “Alleghany delivers special value” given Berkshire’s strong financial position that offers the insurance companies under its umbrella access to all of the investment strategies, which are virtually unparalleled. For Berkshire’s part, it acquired a high-quality company with $14 billion of float. They also brought in Brandon as head of the conglomerate’s insurance business, with the potential for Brandon to succeed Berkshire executive Ajit Jain.
Berkshire investors are hopeful that Buffett can bring in more such valuable acquisitions, and Buffett himself has long been on the hunt for an “elephant-sized deal” for up to $100 billion, which he has yet to capture.