Berkshire Hathaway Is Likely to Buy Alleghany. No Rival Bids Emerged.

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It looks like

Berkshire Hathaway

will succeed in buying the insurer

Alleghany

for $11.6 billion, or $848.02 a share—a well-priced acquisition for CEO Warren Buffett.

 A go-shop period following the deal announcement on March 21 ended on Thursday. There were no competing proposals to purchase the company, Alleghany said Monday.

In morning trading, Alleghany shares (ticker: Y) were down $4.92, or 0.6%, to $840.58, trading at a discount to the deal price that gives traders an incentive to hold the stock until the sale is completed. The transaction is expected to close in the fourth quarter.

“During the go-shop period, Alleghany and its financial advisor solicited alternative acquisition proposals from 31 potentially interested third parties,” the company said. “Despite these efforts, Alleghany did not receive any alternative acquisition proposals.”

It’s possible, but highly unlikely, that an alternative proposal will emerge now.

 The lack of an alternative proposal represents a coup for Berkshire Hathaway (BRK/A, BRK/B) CEO Warren Buffett. He made a take-it-or-leave proposal of $848.02 a share in cash—$850 a share less fees paid to Alleghany’s investment banker

Goldman Sachs

—and it was accepted by the Alleghany board.  Berkshire’s class A shares were off 0.1% Monday at $516,000.

Berkshire’s offer, which represented a roughly 25% premium to Alleghany’s year-end 2021 book value and a similar premium to its market price prior to the deal announcement, was deemed fair but not full by JMP Securities analyst Matthew Carletti.

Barron’s argued at the end of March that Buffett was getting a steal because Alleghany, unlike many property and casualty insurers, has valuable non-insurance businesses including a lucrative toy company and a growing steel fabricator. Adjusting for the value of those businesses, we estimate that Berkshire is paying less than 1.1 times book for Alleghany’s attractive insurance operations. The price amounts to less than 12 times projected 2022 earnings for the company.

 It turns out that Buffett bid enough to deter other potential acquirers.  Given Berkshire’s enormous capital base, Alleghany’s insurance business is likely to be more profitable under Berkshire’s ownership, and Berkshire will get some attractive noninsurance operations to add to its many other divisions.

 Alleghany is small relative to Berkshire, which has a market value of $760 billion, but it will be a nice addition to the company’s huge insurance business.

Alleghany CEO Joe Brandon, a veteran insurance executive who used to work at Berkshire, is expected to remain with Berkshire once the deal closes. He is well regarded and could be a successor to Ajit Jain, 70, who heads Berkshire’s insurance operations.

Write to Andrew Bary at [email protected]