OMAHA, Neb., June 19 (Reuters) - Warren Buffett's Berkshire Hathaway Inc. said on Friday it will acquire insurer General Re Corp. in a deal valued at $22 billion.
Omaha-based Berkshire, controlled by the billionaire who is one of the world's most widely imitated investors, will add General Re to its stable of insurance businesses, which include Geico Corp., the nation's seventh-largest auto insurer.
General Re is one of the world's largest issuers of reinsurance policies, which insurance companies buy to manage risks associated with the policies they write. Reinsurers have been viewed as ripe for consolidation amid intense pricing competition and scarce growth prospects in the industry.
Buffett, whose fortune Forbes magazine estimated at $21 billion, said General Re's profits could grow faster if it were part of Berkshire, since it would have more capital available to it and be able to exploit more opportunities overseas. He also cited tax advantages that would result from the merger.
``This combination virtually assures both Berkshire and General Re shareholders that they will have a better future than if the two companies operated separately,'' the Omaha, Neb.-based investor said in a statement.
Buffett's other holdings include big stakes in Coca-Cola Co., McDonald's Corp., Gillett Co., and an estimated 20 percent of the world's silver, acquired earlier this year.
In a statement released after the stock market closed, General Re said its shareholders will have the option of taking either 0.0035 of a Berkshire Hathaway Class A share or 0.105 of a Class B share, for a total of about $22 billion.
Berkshire Hathaway's Class A stock, the most expensive on the New York Stock Exchange, rose $1,900 to $80,900 on the Big Board Friday. General Re stock jumped $51.50 to $275 in after-hours trading.
General Re Chairman Ron Ferguson will join Berkshire's board of directors, the companies said.
The deal is subject to approval by regulators and the two companies' shareholders.
Completion is expected in the fourth quarter, the companies said.
If Warren Buffett is willing to pay 23 PE for General Re then what Should AIG be worth. I was racking my brains today trying to figure out why AIG was up 4 1/4 . There was no news and then at 4:00 WHAMM!!!! I fell out of my chair!!! I couldn't believe it!! Then the gears started working and I wanted to see how AIG would compare
As you can see from the chart we blow them away on Price quality Here are some other comparisons;
Return On Equity AIG===14.54,GRN===12.42(from Yahoo) Underwriting Margin AIG==3.0,GRN===.5 (from Value Line 98 est.) % Expenses to PREM Written AIG===20.5,GRN===29 (VL98est.)
ANNUAL GROWTH RATES est 94-96 to 00-02 Premium Income AIG==14%, GRN===10.5% Investment Income AIG==16.5%, GRN===12% Earnings AIG===16.5%, GRN===12% Dividends AIG===17%, GRN===7% Book Value AIG===16% GRN===10%
So with a PE of 23 shouldn't AIG be worth alot more than the 27 PE that it carries now. Especially with AIG's record of 13 years of rising earnings. I think come Monday all
Insurance stocks will take off. I feel that AIG will beat them all. If they can put something on paper in Japan this weekend and have the dollar go down vs. the Yen we will see the bottom in concern to the Asian Crisis. And all the money thats sitting on the sidelines will be going back into the markets with a ferver. I hope I'm right for most of the money will then head to the Insurance Companies, It will be killing two birds with one stone.
"Buffett, who is widely followed for his stock-picking prowess, refused at the press conference to comment directly on Berkshire's portfolio, including in American International Group Inc., another insurance giant.
However, Buffett said he did not think it was a conflict of interest to have a stake in AIG with this acquisition (General Re).
Buffett also said that he had not pursued any other acquisitions in the reinsurance business and that he had no other targets in the financial services industry on his 'dance card.'"