Berkshire Hathaway Acquires Alleghany — Details on the $11.6 Billion Deal

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Mar. 21 2022, Published 12:16 p.m. ET

Billionaire Warren Buffett has built an empire of acquisitions through his publicly-traded company Berkshire Hathaway Inc. (BRK.B). The company has acquired 54+ organizations, the latest of which is Alleghany Corporation (Y).

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Here’s what to know about the Berkshire Hathaway-Alleghany deal, including financial details, what the deal needs to finalize, and what will happen to Alleghany stock.

The rundown: Berkshire Hathaway buys Alleghany

alleghany
Source: Alleghany

Berkshire Hathaway CEO Warren Buffet and Alleghany Corp. CEO Joseph Brandon

In its first total acquisition of the year, Berkshire Hathaway is buying insurance company Alleghany Corp. for $11.6 billion. The move comes about a week after Berkshire acquired a 14.6 percent stake in oil company Occidental Petroleum worth about $1 billion.

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This isn’t Berkshire’s first insurance acquisition. For example, the company already owns GEICO and Medical Liability Mutual Insurance Co. The deal with Alleghany will go through entirely in cash and propel Berkshire’s insurance holdings by a prominent margin.

For Buffett, this is a highly calculated move. He discussed the deal and said, “Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years.”

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Alleghany Corp. is an insurance giant — but that wasn't always the case.

Alleghany is a major player in the insurance sector with a special focus on property and casualty insurance. However, it was originally founded in 1929 as a railroad investment firm. After going bankrupt during the Great Depression, the Kirby family took over and remains in multiple positions of power today. At some point, Alleghany made its final transition to become a wholehearted insurance company.

What’s next for the Berkshire Hathaway-Alleghany deal?

If all goes according to plan, the Berkshire Hathaway acquisition of Alleghany is expected to go through by the end of 2022. Still, Alleghany shareholders must vote to approve the deal. Considering the acquisition values Alleghany stock at a premium, it’s likely that shareholders will find the terms of the agreement favorable.

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What happens to Alleghany stock?

The deal values Alleghany stock at $848.02 per outstanding share. That’s about a 25 percent premium on the stock’s closing price of $675.94 on Friday, March 18. If Alleghany shareholders approve the deal, Berkshire will absorb the publicly traded Y stock and liquidate shareholders’ positions for cash. After last year’s lull in acquisitions, Berkshire definitely has the capital to spare.

In the meantime, shareholders have piled into Alleghany stock, quickly pumping the asset to the aforementioned 25 percent premium.

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How is Berkshire Hathaway stock responding?

Despite BRK.B stock’s massive $771.55 billion market capitalization — plus that of BRK.A (Class A) stock’s $772.98 billion — the $11.6 billion Alleghany acquisition has put a positive spin on Berkshire securities.

BRK.B, the Class B stock that retail investors purchase, is up 2.34 percent in the first few hours of trading on Monday, March 21. At the same time, the more premium BRK.A is up 2.34 percent (and at $525,000 per share, that’s a jump of more than $12,000 in just a few hours).

At day’s end, investors are responding favorably to the Berkshire Hathaway-Alleghany deal.

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