It may not be the “elephant-sized” deal that Warren Buffett has long promised, but Berkshire Hathaway is making its biggest acquisition in years: it’s buying insurer Alleghany for $11.6 billion in cash.
Buffett, the “Oracle of Omaha,” has been saying for years that he wants to make a huge purchase — but that companies were too expensive. As a result, Berkshire Hathaway (BRKB) has nearly $147 billion in cash on its balance sheet.
With Monday’s announcement, however, Buffett clearly must have felt that buying Alleghany was a big deal. The acquisition expands Berkshire’s already sizable portfolio of insurance companies, which includes Geico, General Re and several others.
Shares of Alleghany (Y) soared about 25% on the news.
The Alleghany acquisition also brings back a former Buffett lieutenant. Its CEO Joseph Brandon, who led General Re from 2001 to 2008 and was once considered a possible Buffett successor. (Buffett announced last year that Berkshire vice chairman Greg Abel will eventually be CEO.)
“Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years,” Buffett said in a press release Monday. “I am particularly delighted that I will once again work together with my long-time friend, Joe Brandon.”
Brandon wrote in a statement that “this is a terrific transaction for Alleghany’s owners, businesses, customers, and employees” and that “each of Alleghany’s businesses will be exceptionally well positioned to serve its clients and achieve its full potential.” Alleghany, like most Berkshire subsidiaries, will continue to operate independently.
Still hunting an elephant
Berkshire’s last huge deal was the 2015 acquisition of aerospace equipment company Precision Castparts for more than $37 billion. But Buffett said in last year’s annual Berkshire Hathaway shareholder letter that he “paid too much for” the company.
But Buffett lamented how expensive businesses are to buy. That’s why Berkshire has mostly put cash to work during the past few years by investing in more quality blue-chip stocks, such as top holdings Apple (AAPL), Bank of America (BAC), American Express (AXP), Coca-Cola (KO) and Kraft Heinz (KHC).
In Berkshire’s most recent annual shareholder letter, Buffett continued to express frustration about the lack of good values. He wrote last month about possible acquisitions, saying that “from time to time, such possibilities are both numerous and blatantly attractive. Today, though, we find little that excites us.”
Shares of Berkshire’s class B stock, which are more affordable for average investors, rose slightly Monday to about $345 a share.
The class A Berkshire shares (BRKA), which do not split to keep their price lower, trade at about $513,000 apiece. Both classes of Berkshire shares are up about 15% this year and are not far from their all-time highs.
Berkshire owns a wide range of companies, from the Burlington Northern Santa Fe railroad and Duracell batteries to Dairy Queen and Fruit of the Loom. It’s one of the most valuable companies on the planet, worth more than $750 billion. Buffett’s personal net worth is just under $125 billion.