Buffett ends drought with $11.6 billion Alleghany insurance purchase

Berkshire Hathaway Chairman Warren Buffett walks through the exhibit hall as shareholders gather to hear from the billionaire investor during Berkshire Hathaway Inc’s annual shareholders meeting in Omaha, Nebraska, U.S., on 4 May 2019. REUTERS/Scott Morgan

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NEW YORK, March 21 (Reuters) – Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) has reached an agreement to buy insurance company Alleghany Corp (YN) for $11.6 billion, just weeks after the 91-year-old billionaire lamented his lack of good investment opportunities.

Alleghany, whose business includes reinsurer Transatlantic Holdings, would expand Berkshire’s extensive portfolio of insurers, which includes auto insurer Geico, reinsurer General Re and a unit that insures against major catastrophes and unusual risks.

“Berkshire will be the perfect permanent home for Alleghany, a business I have watched closely for 60 years,” Buffett, who has led Berkshire since 1965, said in a statement.

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The acquisition, one of the five largest in Berkshire’s history, would 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 major acquisitions and help him deploy some of the $146.7 billion in cash and cash equivalents his Omaha, Nebraska-based conglomerate had at the end. of the year.

Buffett lamented in his February 26 annual letter to shareholders that “internal opportunities offer much better returns than acquisitions,” and that little “excites us” in the stock markets. read more He pledged to keep $30 billion in cash.

Berkshire agreed to pay $848.02 in cash per Alleghany share, a 25% premium to Friday’s closing price.

Alleghany has a 25-day “go-shop” period to find a better deal. Berkshire does not get involved in bidding wars.

The transaction is expected to close in the fourth quarter pending regulatory and Alleghany shareholder approvals. Alleghany would operate as an independent unit of Berkshire.

Berkshire “embodies our philosophy of long-term management,” Brandon said in a statement.

Insurance typically generates more than 20% of Berkshire’s operating profit, whose dozens of businesses also include BNSF railroad, Berkshire Hathaway Energy and Dairy Queen ice cream.

Berkshire also invests hundreds of billions of dollars in stocks such as Apple Inc (AAPL.O) and has invested more than $6.4 billion in Occidental Petroleum Corp this year. Read more

New York-based Alleghany was founded in 1929 by railroad entrepreneurs Oris and Mantis Van Sweringen.

It was transformed into an insurance and investment company under the direction of Fred Morgan Kirby II from 1967 to 1992.

Alleghany is sometimes seen as a mini-Berkshire, and Buffett said the businesses have “many similarities.”

Alleghany’s other units include RSUI Group, a wholesale specialty insurance underwriter, and CapSpecialty, a specialty insurer.

Goldman Sachs and law firm Willkie Farr & Gallagher advised Alleghany on the transaction. The law firm Munger, Tolles & Olson advised Berkshire.

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Reporting by Noor Zainab Hussain in Bangalore and Jonathan Stempel in New York Additional reporting by Mehnaz Yasmin in Bangalore Editing by Saumyadeb Chakrabarty and Mark Potter

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