Despite discussing alternative proposals with some 31 parties, Alleghany Corporation has not found a better bidder than Warren Buffett’s conglomerate Berkshire Hathaway, which is now on-track to secure its acquisition of the TransRe owner.
Recall, Berkshire Hathaway announced its intent to acquire Alleghany Corporation, the owner of reinsurance firm TransRe and other insurance entities CapSpecialty and RSUI Group, in an all-cash deal valued at $11.6 billion.
As our sister publication reported recently, Alleghany had been seeking a higher price, in trying to raise the $850 per share that had been offered, but Berkshire didn’t budge.
That might have suggested it was likely Alleghany would be looking for more, you’d think, and in announcing the end of a go-shop period in which it could offer itself to other parties, Alleghany revealed it had spoken to 31, albeit unsuccessfully.
Alleghany and its representatives were allowed, under the terms of Berkshire Hathway’s proposed merger, to solicit and consider alternative acquisition proposals from third parties until April 14th 2022.
Alleghany said that with its financial advisor it solicited alternative acquisition proposals from 31 potentially interested third parties, but no alternative acquisition proposals were received.
As a result, Alleghany is now bound by customary “no-shop” restrictions, so limiting its ability to engage in discussions or negotiations regarding alternative acquisition proposals from third parties.
As a result, the transaction is now expected to close in Q4 2022 and there is no termination fee payable either way, suggesting the deal will proceed as planned and Warren Buffett will grow his reinsurance business considerably as a result.
It was always hard to think of any potential buyers aside from Buffett, as Alleghany has interests outside of insurance and reinsurance, so is more like a mini-Berkshire, with the only comparable company perhaps Markel, or a European buyer such as Talanx (that has interests across multiple industries).
A break-up might have been the only proposition that could have had some traction behind it, as Alleghany’s insurance and reinsurance interests would have been attractive M&A targets had they come onto the market individually, or as a group.
But bundled with the rest of Alleghany’s interests and with its board strongly backing the deal with Buffett, it was always a long-shot any alternative buyer would be found.
Which raises the prospect of TransRe being consumed into Berkshire Hathaway and while it will remain a distinct entity, with its brand intact it seems, there are likely to be changes that will affect reinsurance and insurance-linked securities (ILS) interests.
TransRe’s retrocession buying will undoubtedly change, perhaps dramatically, as once consumed within the Berkshire Hathaway insurance and reinsurance group businesses and with that enormous balance-sheet behind it, the need for specific protection for its portfolios will certainly reduce.
That may also affect TransRe’s use of third-party capital within its retrocession and also quota shares it enters into with ILS investors.
TransRe also has a long-standing collateralized reinsurance sidecar vehicle in Pangaea, the latest iteration of which was sponsored earlier this year.
Whether Pangaea and TransRe’s other ILS style activities, in terms of quota shares and offerings will continue remains to be seen.
Berkshire Hathaway does not use ILS or third-party capital in its other businesses, except perhaps within the small retro arrangements it does buy for entities such as Gen Re and its own Berkshire reinsurance book. But they are likely to be small arrangements, given the balance-sheet strength of the company.
So, we could see Pangaea disappear in time, which also raises questions on TransRe’s relationship with Integral ILS, the ILS fund manager in which it has a stake.
Integral ILS had been taking risk via TransRe and, again, there’s a chance that may not continue post-acquisition and merger close.