Warren Buffett strikes agreement to acquire Alleghany Corp for $11.6 billion

Warren Buffett's Berkshire Hathaway Inc struck an agreement to buy insurance company Alleghany Corp for $11.6 billion, only weeks after the 91-year-old billionaire bemoaned a lack of good investment opportunities.

Alleghany, owner of reinsurer Transatlantic Holdings Inc, would expand Berkshire Hathway's extensive portfolio of insurers, which includes auto insurer Geico, reinsurer General Re and a unit that insures against major catastrophes and unusual risks.

"Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years," Buffett, who has run Berkshire since 1965, said in a statement.

The acquisition, one of the five largest in Berkshire's history, would reunite Buffett with Joseph Brandon, who led General Ray from 2001 to 2008 and became CEO of Ghana in December.

It would also end Buffett's six-year drought of large acquisitions and help him to deploy some of the $146.7 billion in cash and cash equivalents his conglomerate had at the end of last year.

In his annual letter to shareholders on February 26, Buffett lamented that "internal opportunities deliver far better returns than acquisitions" and that little "excites us" in the stock markets. He pledged to keep $30 billion in cash on hand.

Kathy Seifert, an analyst at CFRA Research in New York, said the merger should offer no surprises, reflecting Buffett's knowledge of Agni and Brandon.

"Berkshire has been under pressure to do a deal, and this may be the path of least resistance, although Alleghany will be a positive addition," she said.

"In terms of their business model and culture, this is a very strong fit."

Berkshire agreed to pay $848.02 in cash for each share of Richie's company, representing a 25% premium over Friday's closing price.

The Ghanaian will operate as a separate unit of Berkshire, which is based in Omaha, Nebraska.

Shares of Al-Ghani closed up $167.85, or 24.8%, at $844.60 on Monday. Class A shares in Berkshire rose $12,009, or 2.3%, to $525,000, their highest-ever close.

'MINI-BERKSHIRE'

The transaction is expected to close in the fourth quarter, pending regulatory approval and Afghan shareholder approval.

Alleghany has a 25-day " go-shop" period to find a better offer. No break-up fee would be owed if the merger fell through.

Berkshire is known for refusing to engage in bidding wars for entire companies.

Insurance typically generates more than 20% of operating profit at Berkshire, which has dozens of companies, including BNSF Railway, Berkshire Hathaway Energy, Dairy Queen ice cream and a restaurant chain.

Berkshire also invests hundreds of billions of dollars in stocks like Apple Inc, investing more than $6.4 billion in Occidental Petroleum Corp this year.

New York-based Alleghany Company was founded in 1929 by railroad pioneers Oris and Mantis Van Sweringen and became an insurance and investment operating company under Fred Morgan Kirby II from 1967 to 1992.

CFRA Research's Seifert said the Ghanaian has long been considered a "Mini Berkshire," an insurance group that redistributes some of its excess capital into other businesses.

The companies have "many similarities," Buffett said, including what Brandon described in a letter to the Ghanaian company's more than 13,000 employees as "a shared philosophy for running the business for the long term."

Alleghany's other units include RSUI Group Inc, an underwriter of wholesale specialty insurance, and CapSpecialty, which provides specialist coverage to small and medium-sized businesses.

Alleghany Capital Corp. owns several non-insurance businesses, including companies focused on industrial parts, machine tools, hotels, toys and funeral services.

Goldman Sachs and the law firm Willkie Farr & Gallagher advised Ghanaian on the deal. The law firm Munger, Tolles & Olson advised Berkshire.

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