Just three weeks ago, the president and CEO of Berkshire Hathaway, Warren Buffett, expressed the difficulties of having $144 billion in idle cash, in a bearish context such as the one experienced by the New York stock exchanges in this first tranche of 2022.
“Nor are they never permanent,” he acknowledged, referring to this extraordinary liquidity, when time is also ticking and inflation accelerates, which in the US reached 7.9% a year in February, a peak since 1982.
Buffett is a financial guru who is usually one step ahead of his competitors, in a tough financial world where survival is played out day by day and with millionaire costs. And now it moved the market again by putting some of its monumental cash to work, accepting the acquisition of the insurance company Alleghany Corporation for $11.6 billion.
This was the “first multi-million dollar deal Buffett has reached since the 2020 acquisition of Dominion Energy, a gas transportation business,” a Barron's report said. He added that the purchase of Alleghany was also “the largest since the acquisition of Precision Controls for nearly $35 billion in 2016.”
Berkshire Hathaway, the veteran investor's business conglomerate, announced Monday the agreement by the insurer and it is expected that the acquisition, one of the largest in recent years at Buffett's company, will be closed in the fourth quarter of 2022.
The plan is for Alleghany to become a subsidiary of Berkshire Hathaway, according to a joint statement.” Berkshire will be the perfect permanent home for Alleghany, a company that I have watched closely for 60 years,” said Buffett, who at 91 is the top management of the company with his partner Charlie Munger, from 98.
Buffett also noted his corporation's “affinities” with Alleghany, a firm that began in 1929 in the railroad business and has shifted to investment and insurance for property and casualties through different subsidiaries. Alleghany has a short period of time to search for a superior transaction.
Berkshire Hathaway, whose current business is very diverse and covers insurance, energy, railways or retail products, had recently reported its difficulty in finding potential acquisitions.
Its last major operation was about six years ago, when it bought the industrial company Precision Castparts for some USD 35 billion, according to specialized media outlet CNBC.
The operation, however, does not seem to be a bargain. According to the note, Berkshire will buy Alleghany shares in cash for $848.02 each, which is 29% higher than its average price for the last month and 16% higher than its maximum price last year.
In Berkshire's balance sheet, at the end of 2021, there was $144 billion in liquidity. Of that figure, 120 billion was in the North American Treasury. “That imposing sum, I assure you, is not a deranged expression of patriotism. Neither Charlie (Munger) nor I have lost our overwhelming preference for corporate ownership,” Buffett clarified at the end of February, through his traditional annual letter to shareholders.
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