- Warren Buffett struck his $12 billion deal to acquire Alleghany within two weeks.
- The Berkshire Hathaway CEO made his offer over dinner with Alleghany’s CEO in March.
- The terms of Buffett’s offer show his love of fast and simple deals, and his dislike of middlemen.
Warren Buffett pulled together Berkshire Hathaway’s $12 billion acquisition of Alleghany in under two weeks, a regulatory filing revealed on Monday.
The transaction was sparked by Alleghany CEO Joe Brandon — who previously worked for Buffett as CEO of General Re, a Berkshire subsidiary — mailing a copy of his annual letter to the Berkshire boss in February. Buffett proposed a catch-up, and the pair met for dinner in New York City on March 7.
Buffett wasted little time making a cash offer of $850 per share for Alleghany. The billionaire investor told Brandon the offer wasn’t subject to financing or geopolitical risks, and Berkshire wouldn’t conduct any due diligence.
However, Buffett warned that if Alleghany hired a financial advisor, their fee would be subtracted from his offer. He also emphasized the deal was contingent on both sides moving quickly to craft and close an agreement.
Shortly after the dinner, Brandon informed Alleghany chairman Jeff Kirby of Buffett’s offer. Brandon and Kirby met Buffett in his hometown of Omaha on March 12, and Kirby pressed the Berkshire boss to raise his price, not deduct the financial advisor’s fee, or pay partly in Berkshire stock. Buffett “reiterated the terms of his original offer, indicating firmly he did not intend to change his position on those points,” Alleghany’s filing states.
Alleghany’s next big step was to engage Goldman Sachs at a cost of $27 million. That sum was deducted from Berkshire’s offer, reducing it to $848.02 in cash per share. Alleghany’s board went on to vote unanimously for the merger on March 20, and the deal was announced the next morning — fewer than 14 days after Buffett made his offer.
Notably, Alleghany’s directors decided against sounding out alternative offers before signing Berkshire’s deal. They cited Buffett’s historic avoidance of auctions, the risk he might pull his offer, and the possibility of news of the deal leaking and potentially affecting the agreement.
The final deal includes a “go-shop” provision, granting Alleghany 25 days to solicit a superior offer. It also spares the insurer from having to pay Berkshire a termination fee if it strikes a better agreement. Goldman has contacted a total of 31 potential bidders ahead of the “go-shop” deadline of midnight, April 14.
The story of the Alleghany deal highlights several of Buffett’s idiosyncrasies as a dealmaker:
- Making the offer over dinner, with few caveats and no requirement for due diligence, speaks to his philosophy of simplicity and trust in business.
- Insisting on deducting Goldman Sachs’ fee underlines his disdain for brokers and other middlemen.
- Pushing for the deal to close quickly, and refusing to raise his offer, reflects his hard-nosed negotiating style.
- Paying in cash instead of Berkshire stock speaks to his fear of handing over shares that could soar in value — a mistake he made acquiring General Re and Dexter Shoe.
- Allowing Alleghany to seek out a better offer underscores his belief that a mutually agreeable deal works better than a hostile one in the long run.
Read the original article on Business Insider