Berkshire Hathaway acquiring TransRe parent Alleghany in $11.6bn deal

A significant insurance and reinsurance M&A transaction has just been announced, with Warren Buffett’s conglomerate Berkshire Hathaway set to acquire Alleghany Corporation, the owner of reinsurer TransRe, in an all-cash deal valued at $11.6 billion.

The move expands Berkshire Hathaway’s already significant insurance and reinsurance market interests, while providing an exit to Alleghany’s owners and backers.

The companies said the deal provides, “significant premium, delivering substantial and certain value for Alleghany stockholders.”

At $848.02 per share in cash, the transaction represents a total equity value of approximately $11.6 billion for Alleghany, which is a multiple of 1.26 times Alleghany’s book value at December 31, 2021, a 29% premium to Alleghany’s average stock price over the last 30 days and a 16% premium to Alleghany’s 52-week high closing price.

“Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years. Throughout 85 years the Kirby family has created a business that has many similarities to Berkshire Hathaway. I am particularly delighted that I will once again work together with my long-time friend, Joe Brandon,” Warren E. Buffett, Berkshire Hathaway’s Chairman and Chief Executive Officer explained.

“My family and I have been significant shareholders of Alleghany for over 85 years and are proud that our ownership will culminate through this compelling transaction with Berkshire Hathaway. Not only does this deal provide substantial and certain value to stockholders, but it provides a rare opportunity to join forces with a like-minded and highly respected investor and business leader,” added Jefferson W. Kirby, Chair of the Alleghany Board of Directors. “Berkshire Hathaway’s support, resources, and expertise will provide added benefits and opportunities for Alleghany and its operating businesses for many years to come.”

“This is a terrific transaction for Alleghany’s owners, businesses, customers, and employees,” Joseph P. Brandon, Alleghany’s President and Chief Executive Officer also stated. “The value of this transaction reflects the quality of our franchises and is the product of the hard work, persistence, and determination of the Alleghany team over decades. As part of Berkshire Hathaway, which epitomizes our long-term management philosophy, each of Alleghany’s businesses will be exceptionally well positioned to serve its clients and achieve its full potential.”

The acquisition is expected to close in the fourth quarter of 2022, subject to closing conditions and approvals by Alleghany stockholders and regulators.

Alleghany will continue to operate as an independent subsidiary of Berkshire Hathaway after the closing of the deal, suggesting the TransRe brand will also continue to be a feature of reinsurance markets.

Alleghany Chair Kirby, who controls 2.5% of Alleghany common shares, intends to vote his shares for the transaction, the companies said.

Alleghany does have the option to shop around for a better deal during a 25 day “go-shop” period, while it can also terminate the merger agreement, subject to terms and conditions.

But with the Alleghany chair and board seemingly on-side, it seems unlikely another suitor will be sought out by Alleghany, meaning it would likely have to come down to an approach being made with a significantly higher price to turn shareholders heads away from a deal with Berkshire Hathaway.

TransRe, the Alleghany owned reinsurance company, has an active third-party capital strategy through its Capital Partners unit and its long-standing sidecar vehicle Pangaea.

The reinsurer has been pulling back on catastrophe risk in recent quarters, but as part of Berkshire Hathaway we could see strategies change a little, given the scale of the conglomerate’s balance-sheet.

Berkshire Hathaway already owns reinsurer Gen Re and its own Berkshire Hathaway Reinsurance Group, of which Gen Re is part.

This acquisition adds more expertise and reach into global reinsurance markets and could see Berkshire ramp up its reinsurance premiums even further.

Whether third-party capital will still have a role to play in a Berkshire Hathaway owned TransRe further down the line remains to be seen, as the conglomerate doesn’t really have the need for additional investor support for its balance-sheet. It will be interesting to see how the strategy changes over time, once this acquisition is completed.