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Buffett Does $11.6 Bln Mini-Me Deal Because He Can!

Buffett Does $11.6 Bln Mini-Me Deal Because He Can!

Warren Buffett’s first big acquisition in two years couldn’t be more Buffett. Berkshire Hathaway (BRKa.N), the $750 billion insurance conglomerate he runs, agreed on Monday.

To buy smaller insurer Alleghany (Y.N) for $11.6 billion in cash. Alleghany is basically a Berkshire mini-me both in its culture and strategy. So, Buffett, classically, has inked a deal only he could get.

Alleghany’s similarities to Berkshire are obvious and deliberate. Chief Executive Joe Brandon used to run one of Buffett’s reinsurance subsidiaries. 

His predecessor spent nearly two decades consciously building Alleghany into a Berkshire-like edifice that eschews quarterly reporting calls.

Let its businesses run independently with a few executives allocating capital from above, and focuses on book value per share as its measure of value, which, until recently, Buffett did too.

The difference: Alleghany is cheaper, even with a 25% premium that Berkshire is paying. Buffett’s price represents a multiple of around 1.25 times book value at the end of 2021,

Whereas back in March 2020 it was trading at around 1.35 times. Berkshire trades at 1.5 times. That makes the $11.6 billion prices look a bit ho-hum.

Then again, Alleghany will never have Berkshire’s scale. While Buffett’s empire rose to enormity through times like the 1980s, when interest rates were high and company valuations low 

Ideal conditions for a business that writes insurance and buys businesses with the premiums – Alleghany today has no such tailwinds. 

Plus both firms’ book value will be eroded by falling stock valuations that insurers hold their portfolios. So the timing is good.


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Alleghany shareholders do have some insurance in case Brandon, who the Omaha Sage calls a “long-time friend” and once likened to former General Electric boss Jack Welch, has rolled over too easily. 

The company is free to find another buyer, and there’s no break fee if it does so. But it will be hard to find someone with billions to spare, supportive shareholders, such a close cultural fit, 

And the name Warren Buffett. The cost of doing a deal with Buffett is knowing he always gets the better end of it.

Berkshire Hathaway on March 21 said it had agreed to buy insurance conglomerate Alleghany for $848.02 a share, equivalent to $11.6 billion.

Warren Buffett, Berkshire Hathaway’s chairman and chief executive officer, said he had “closely observed” Alleghany for 60 years. 

Alleghany Chief Executive Joe Brandon previously ran General Re, a Berkshire Hathaway subsidiary.

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Alleghany owns reinsurer Transatlantic, or TransRe, and commercial insurer RSUI. The group reported an 8.3% increase in book value over 2021 and earnings of more than $1 billion for the first time in its history. Reuters!

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