The merger between Alleghany and Berkshire Hathaway could see the former benefitting from the latter’s financial resources and flexibility, says AM Best.
The ratings agency has released a new note saying that while the merger may not result in any immediate changes to Alleghany’s credit ratings, it and its affiliates could see a benefit over time.
AM Best wrote: “Assuming that the acquisition is completed as currently contemplated, AM Best does not expect the transaction’s execution to result in any immediate changes to Alleghany’s credit ratings.”
It added: “Over time, as AM Best learns more about Berkshire’s plans for supporting the acquired entities, it is possible that the ratings of Alleghany and its various affiliates could benefit from the vast financial resources and financial flexibility that Berkshire possesses.”
Berkshire and Alleghany jointly announced on March 21, 2022, that they had entered into a definitive agreement under which Berkshire will acquire all outstanding Alleghany shares for $848.02 per share in cash.
Industry reaction to the merger has so far been positive, with David Paul, principal at ALIRT Insurance Research, saying that Alleghany was a ‘perfect fit’ for Berkshire Hathaway. Paul went on to say that Berkshire Hathaway was, in essence, acquiring a ‘smaller version of itself’.
The transaction, which was approved unanimously by both boards of directors, represents a total equity value of approximately $11.6bn.
