Berkshire (BRK.B) Ups Insurance Game With $11.6B Alleghany Deal
Berkshire Hathaway (BRK.B) has inked a deal to acquire property and casualty reinsurance company, Alleghany Corporation. Pending approval by the regulators of Alleghany, the transaction is expected to be completed in the fourth quarter of 2022.
Per the agreement, Berkshire Hathaway will acquire Alleghany for $848.02 per share in cash, which represents an acquisition price of around $11.6 billion.
The equity value of $11.6 billion indicates 1.26 times book value as of Dec. 31, 2021, a 29% premium to its average price over the last 30 days and a 16% premium to Alleghany’s 52-week high closing price.
Per the terms of the merger agreement, Alleghany has a 25-day “go-shop” period during which the insurer may opt for other alternate proposals and dismiss the definitive merger agreement with Berkshire Hathaway.
Berkshire Hathaway is a conglomerate with more than 90 subsidiaries. Its property and casualty insurance business generates maximum return on equity. It is the second-largest property and casualty insurance company, measured by its premium volume. BRK.B remains focused on making acquisitions. While big acquisitions opening up more business opportunities for the insurer, bolt-on acquisitions enhance the earnings of the existing business.
Being a conglomerate, Alleghany owns a wide array of insurance and reinsurance companies and is also a toy producer, a funeral products maker and a manufacturer of custom trailers.
Per Warren E. Buffett, Berkshire Hathaway’s chairman and chief executive officer, “Berkshire is believed to be the perfect permanent home for Alleghany. The business of Alleghany is quite similar to that of Berkshire Hathaway.” Therefore, the acquisition is expected to bolster Berkshire's position in the insurance business. This latest acquisition is one of the five largest acquisitions in the history of Berkshire. Buffett did not pursue any major acquisition in the past six years.
On the other hand, leveraging the resources and expertise of Berkshire Hathaway will provide Alleghany with better growth opportunities, support its operating businesses and provide significant value to its stockholders.
Price Performance
Shares of this currently Zacks Rank #2 (Buy) insurer have outperformed the industry in a year’s time. BRK.B has gained 42.4%, outperforming the industry’s increase of 24.1%.
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Other Merger and Acquisition Activity
Given the insurance industry’s adequate capital level, players like Brown & Brown, Inc. BRO, Arthur J. Gallagher & Co. AJG and Prudential Financial Inc. PRU have been engaged in pursuing strategic mergers and acquisitions.
Brown & Brown has agreed to buy Global Risk Partners Limited to strengthen the acquirer’s presence in the United Kingdom and Ireland, accelerate growth on a global scale and expand market relationships. BRO intends to make consistent investments in boosting organic growth and margin expansion. Its solid earnings have allowed the insurer to expand its capabilities, with the buyouts extending BRO’s geographic footprint.
Arthur J. Gallagher acquired Bellevue, WA-based insurance broker Hawley & Associates, LLC. The acquirer’s impressive inorganic story features a strong merger and acquisition pipeline with about $200 million revenues associated with nearly 35 term sheets either agreed upon or being prepared.
Prudential Financial and LeapFrog Investments Group, Ltd. jointly announced the purchase of a minority interest in Alexander Forbes Group Holdings Limited. Prudential has a strong international presence that gives it organic growth opportunities and thus remains upbeat about expanding its international footprint with a focus on directing earnings mix to higher-growth markets.
Shares of BRO, AJG and PRU have gained 52.1%, 36.6% and 27.7%, respectively in a year’s time.
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