Research for 60 years and ‘lose money’ after just 1 dinner
A dinner in New York by Warren Buffett and the CEO of Alleghany Corp. – Joseph Brandon, became the “starter” of one of Berkshire Hathaway’s latest investment hunts.
Buffett and Brandon had dinner together on March 7. At the meeting, the billionaire made it clear that Berkshire was interested in buying Alleghany for $850 a share, according to a regulatory filing released on April 11. This conversation was when Berkshire announced the “bid” price to buy Allegahny and led to the $11.6 billion deal for the insurance company announced at the end of March.
This is one of the biggest acquisitions in years for both Berkshire and Warren Buffett. Recently, the billionaire has spent heavily to “hunt” for investment deals, when this group also bought shares of Occidental Petroleum Corp. And revealed a new bet on technology company HP Inc.
“Berkshire will be the perfect long-term home for Alleghany, a company I’ve been following closely for 60 years,” Buffett said in a statement after going public about the deal in March.
At that dinner, Buffett insisted that the acquisition price did not include the costs of financial advisors. This oddity brought the final figure of the deal with Alleghany to $848.02. Meanwhile, the fees paid to advisers of Goldman Sachs, which is advising Alleghany, will be calculated from the commissions from the shareholders of this insurance company.
The deal later faced some opposition from Alleghany’s negotiators. The company’s president, Jefferson Kirby, asked Buffett to raise the acquisition price during a meeting in Omaha, asking the billionaire to raise the proposed price or eliminate the deduction for financial advisor fees.
In addition, Kirby also asked for another lucrative, but seemingly unattainable, element of the Buffett deal. That’s using Buffett stock to make part of the takeover. However, the billionaire did not agree with that decision, when he once expressed disappointment when using Berkshire stock to buy Dexter Shoe and General Re.
Ultimately, Goldman contacted 23 potential strategic and 8 financial backers during the go-shop period (a provision that allows a company to search for other offers of a higher value). more competitive despite having received an acquisition offer from another company). The goal is to see if Alleghany can find a better offer. This phase will end at 23:59 on April 14 (New York time).
Insurance is one of Berkshire’s key businesses. The companies that have been acquired by Berkshire in this industry group such as Geico, General Re and others have all been the growth engines for the group in recent years. Once the acquisition is complete, Alleghany and related entities will continue to operate as an independent entity, with capital and other support from Berkshire.
Alleghany was founded in 1929 with $12 billion in sales in 2021 and was a railroad holding company before moving into insurance. This feature of Alleghany is similar to Berkshire, which is going from a textile company to the multi-industry conglomerate today.
Accordingly, it can be seen that this deal means a lot to the investment legend, when an insurance brand is added to Berkshire’s portfolio. At the same time, he could comfortably spend billions of dollars on a company run by someone he knew well and trusted.
Refer to Bloomberg; CNBC
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