Warren Buffett to Buy Insurer Alleghany for $11.6B

The Alleghany deal terms include a “go-shop” period, during which the insurer can solicit and consider other acquisition proposals for 25 days, the companies said in the statement.

The transaction, which was unanimously approved by both companies’ boards and has the support Alleghany Chair Jefferson Kirby, who holds 2.5% of the insurer’s shares, is expected to close in the fourth quarter, subject to customary closing conditions.

Alleghany shares surged 26% at 9:35 a.m. in New York, while Berkshire’s Class A shares gained 1%.

What Bloomberg Intelligence says: “Berkshire Hathaway’s agreement to acquire Alleghany for $11.6 billion is right in CEO Warren Buffett’s comfort zone with complementary insurance and reinsurance operations, yet only consumes about 8% of its cash on hand to leave ample capital flexibility,” Matthew Palazola, BI senior industry analyst, and Kylie Towbin, BI associate analyst.

Alleghany will continue to operate as an independent unit when it joins Berkshire. The two companies share a history of railroads and insurance. Alleghany was formed as a holding company for some railroad holdings in 1929, eventually diversifying into insurance, according to its website.

Berkshire, which counts insurers from Geico to Gen Re among its businesses, also owns railroad BNSF.

Brandon previously ran Berkshire’s Gen Re unit before resigning in 2008. Gen Re was under scrutiny at the time, with four former executives convicted of helping American International Group Inc. deceive investors through a sham transaction, though those convictions were later overturned.

Brandon, who wasn’t charged by the Justice Department or Securities and Exchange Commission, had no knowledge of fraudulent elements of the transaction, according to a person familiar with the matter, who asked not to be identified.

Buffett, in his 2008 letter to shareholders, thanked Brandon for “righting the ship” at Gen Re, which had been suffering from a loss of disciplined underwriting and expense management when he took over the reinsurer.

(Photo: Andrew Harrer/Bloomberg)