Alleghany (NYSE:Y) stock is up 25% today on news that Warren Buffett’s holding company, Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), is buying the insurance business for $11.6 billion.
In a written statement, Berkshire Hathaway said it will pay $848.02 per share in cash for Alleghany. Berkshire said the deal “represents a multiple of 1.26 times Alleghany’s book value at December 31, 2021, as well as a 16% premium to Alleghany’s average stock price over the past 30 days.”
Y stock finished trading March 18 at $676.75 a share, up 3% year to date.
What Happened With Alleghany (Y) Stock
The deal will likely close in the fourth quarter of 2022. In the written statement, famed investor Warren Buffett said:
“Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years.”
Berkshire Hathaway already owns several insurance companies, including Geico and General Re. Alleghany has a wide variety of insurance specialties, including wholesale specialty, property and casualty, and reinsurance.
Investors should also note that the deal for Alleghany represents Berkshire Hathaway’s biggest acquisition in six years since the holding company bought Precision Castparts for $37 billion.
Why It Matters
The deal comes as Berkshire Hathaway enjoys a resurgence this year. While markets have been volatile, Buffett’s business has been rallying. The company’s Class A shares hit a record high last week, closing above $500,000 for the first time.
The deal to acquire Alleghany comes just weeks after Buffett and his business partner, Charlie Munger, expressed frustration in their search for a big acquisition. In his 2022 annual shareholder letter, Buffett said he and Munger found “little that excites them in terms of large acquisitions in the current market.”
While significant, the $11.6 billion purchase of Alleghany is a relatively small number when compared with Berkshire Hathaway’s massive cash pile. At the end of 2021, it was sitting on $146.72 billion. In recent weeks, Berkshire Hathaway has also spent billions of dollars to buy stock of energy giant Occidental Petroleum (NYSE:OXY).
What’s Next for Alleghany
Alleghany stock gets a big boost today on news that it is being acquired by Berkshire Hathaway. Once the deal closes in the fourth quarter of this year, Alleghany will be wholly owned by Berkshire Hathaway and stop trading on the New York Stock Exchange. Shareholders of Y stock will benefit from the premium Berkshire is paying to acquire their ownership of Alleghany.
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On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.