[Asia Economy Reporter Jeong Hyunjin] 'The Sage of Omaha,' Warren Buffett, chairman of Berkshire Hathaway, has decided to make the largest investment in six years by acquiring the American insurance company Alleghany. Until last month, he had expressed dissatisfaction over the inability to find acquisition targets, citing that low interest rates had inflated the value of publicly traded companies. It is interpreted that he made the acquisition decision recently due to the decline in stock prices.
According to Bloomberg News on the 21st (local time), Berkshire Hathaway, led by Buffett, announced that it had agreed to acquire the American insurance company Alleghany for $11.6 billion (approximately 14.1 trillion KRW). The acquisition price is 1.26 times Alleghany's net assets as of the end of last year, and the per-share acquisition price of $848.02 includes a 25.3% premium based on Alleghany's closing price on the 18th.
This acquisition is the largest since Berkshire Hathaway acquired aircraft parts manufacturer Precision Castparts for $37 billion in 2016. Berkshire Hathaway had not conducted any large-scale mergers and acquisitions (M&A) in the past six years and held $146.7 billion in cash.
Chairman Buffett said, "Berkshire will be the perfect and permanent home for Alleghany, a company I have closely observed for nearly 60 years." Joseph Brandon, CEO of Alleghany, who previously managed Generali under Berkshire Hathaway and was even mentioned as Buffett's successor, welcomed the deal, saying, "This will be a wonderful deal for our shareholders, agencies, customers, and employees."
Based in New York, Alleghany was founded in 1929 and is known as a 'mini Berkshire' because it holds various types of insurance businesses such as property and casualty insurance, accident insurance, and reinsurance, as well as many profitable non-insurance business divisions. Berkshire Hathaway also operates diverse businesses including insurance, railroads, energy, and utilities.
The market is showing great interest in Buffett's investment, the first in six years. CNBC reported, "Wall Street analysts see the buying spree of the Sage of Omaha as just beginning." In fact, Buffett has continuously expressed his willingness to acquire companies. In 2019, he indicated his intention to pursue large-scale acquisitions by saying he was looking for "elephant-sized acquisitions."
However, he had difficulty finding suitable companies to acquire and had only made equity investments in Apple, Bank of America (BoA), and Coca-Cola since then. As recently as the annual shareholder letter sent with Vice Chairman Charles Munger on the 26th of last month, he said, "There are almost no places that excite us." At that time, he warned that low interest rates had inflated the value of publicly traded companies.
James Shanahan, an analyst at Edward Jones, said, "In recent weeks, the S&P 500 index has fallen, and about one-third of companies' stock prices have dropped more than 20% from recent highs," analyzing that Buffett seems to have found an opportunity through recent stock purchases and investments exceeding $7 billion in Occidental Petroleum.
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