Each General Re share can be traded in for either 0.0035 BRK Class A shares or 0.105 BRK Class B shares. These exchange ratios are set in stone, even if the price of Class A or Class B shares tanks in the future. Right now, BRK Class B shares are $2,588 per share. 0.105 of $2,588 is $271.74. This is above General Re's current share price of $256. So you could easily make a guaranteed $15-16 per General Re share by buying General Re shares right now and waiting for the merger to be finalized in the fourth quarter. You could make more than $15-16 per share if BRK Class B shares continue to rise for the rest of the year. For instance, if Class B shares hit $3,000 a share in the fourth quarter (and if you bought General Re now at $256 per share), then each General Re share would be valued at $3,000 * 0.105 = $315 per share -- but you'd have only paid $256 for it.
Buffett obviously believes General Re is undervalued, despite reports in the media that he is paying a "premium" for General Re. While it's true that paying 0.105 a BRK B share for a General Re share results in Buffett's paying around $270-275 for each General Re share, which was selling at around $225 before the merger announcement, Buffett is still paying only $20-22 billion for $24 billion in General Re's "float." It's like Buffett is paying out $20-22 billion but getting $24 billion automatically in return -- a profit of $2-4 billion that he can immediately pocket. It's not everyday someone just gives you $2-4 billion for free. To Buffett, being able to use money is as good as the money itself. In no time, Buffett will be able to use that float to generate 24% annual returns as he's been doing for the last 40 years. I personally am buying American Express big-time because Buffett recently petitioned and received permission from the Federal Reserve to increase his AXP stake from 10.6% to an astonishing 17%.
I think I understand float, but some of your math makes me think, maybe not. So help me:
Lets assume you have just two items on the balance sheet - $20 billion in cash (float) and $18 billion in obligations to policyholders. I say the equity is $2 billion and you had better not get excited about buying $20 billion in float for "only" $15 billion. There are simply cheaper ways to get the money to use for investing.
Not that this is what is being done with BRK and General Re, just that you can't take the amount of the float in isolation.
If there is anyone out there with a good accounting background who has crunched the numbers on this merger, I'm sure your analysis would be welcomed on this board.