A battle of bids to pick up Alleghany is unlikely, says Keefe, Bruyette & Woods (KBW) in a new note.
KBW’s announcement comes after Berkshire Hathaway 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. The transaction, which was approved unanimously by both boards of directors, represents a total equity value of approximately $11.6bn.
The authors of the note wrote: “We think BRK’s Alleghany acquisition makes strategic sense since their operating philosophies (insurance business supplemented by non-insurance portfolio companies’ earnings streams) and cultures are very similar. We think Berkshire is happy to grow in all of its insurance and non-insurance segments, but Alleghany’s exposure to brokered reinsurance (through TransRe) and small-account specialty business (through CapSpecialty) seems particularly attractive to Berkshire.”
It added: “The deal price is below past deals’, which could stimulate other bidders, but we think most competing (re)insurers are mostly focused on less-complicated organic growth in what remains a positive operating environment. Alleghany’s significant non-insurance businesses would be a difficult fit for most other (re)insurers, which also makes competing bids unlikely.”
Should the deal between the two firms be finalised, it has been posited by AM Best that it would be of potential great benefit to Alleghany. Recently, the ratings firm put out a note saying that Alleghany would benefit from the financial resources and flexibility of its new owners.
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.”
