Enterprising Investor
3 years ago
Buffett ends drought with $11.6 billion Alleghany insurance purchase (3/21/22)
By Noor Zainab Hussain and Jonathan Stempel
NEW YORK, March 21 (Reuters) - Warren Buffett's Berkshire Hathaway Inc (BRKa.N) has struck an agreement to buy insurance company Alleghany Corp (Y.N) for $11.6 billion, just weeks after the 91-year-old billionaire bemoaned a lack of good investment opportunities.
Alleghany, whose businesses include reinsurer Transatlantic Holdings, would expand Berkshire's large portfolio of insurers, which includes auto insurer Geico, reinsurer General Re and a unit that insures against major catastrophes and unusual risks.
"Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years," Buffett, who has run Berkshire since 1965, said in a statement.
The acquisition, one of the five largest in Berkshire's history, would reunite Buffett with Joseph Brandon, who led General Re from 2001 to 2008 and became Alleghany's chief executive in December.
It would also end Buffett's six-year drought of large acquisitions, and help him deploy some of the $146.7 billion of cash and equivalents his Omaha, Nebraska-based conglomerate had at year end.
Buffett lamented in his Feb. 26 annual shareholder letter that "internal opportunities deliver far better returns than acquisitions," and that little "excites us" in equity markets. read more He pledged to keep $30 billion of cash on hand.
Berkshire agreed to pay $848.02 in cash per Alleghany share, a 25% premium over Friday's closing price.
Alleghany has a 25-day "go-shop" period to find a better offer. Berkshire does not get involved in bidding wars.
The transaction is expected to close in the fourth quarter pending regulatory and Alleghany shareholder approvals. Alleghany would operate as an independent Berkshire unit.
Berkshire "epitomizes our long-term management philosophy," Brandon said in a statement.
Insurance typically generates more than 20% of operating profit at Berkshire, whose dozens of businesses also include the BNSF railroad, Berkshire Hathaway Energy and Dairy Queen ice cream.
Berkshire also invests hundreds of billions of dollars in stocks such as Apple Inc (AAPL.O), and has this year invested more than $6.4 billion in Occidental Petroleum Corp . read more
New York-based Alleghany was founded in 1929 by railroad entrepreneurs Oris and Mantis Van Sweringen.
It was transformed into an insurance and investment operating company under Fred Morgan Kirby II's leadership from 1967 to 1992.
Alleghany is sometimes thought of as a mini-Berkshire, and Buffett said the companies had "many similarities."
Other Alleghany units include RSUI Group, an underwriter of wholesale specialty insurance, and CapSpecialty, a specialty insurer.
Goldman Sachs and law firm Willkie Farr & Gallagher advised Alleghany on the transaction. Law firm Munger, Tolles & Olson advised Berkshire.
https://www.reuters.com/business/finance/berkshire-hathaway-acquire-alleghany-116-bln-deal-2022-03-21/
Enterprising Investor
3 years ago
Alleghany Is a Miniature Berkshire Hathaway. Its Stock Is a Buy. (11/05/21)
Warren Buffett turned Berkshire Hathaway ( BRK/A ) into a juggernaut by taking profits from the conglomerate's insurance operations and buying dozens of companies, including the Burlington Northern Santa Fe railroad.
Under CEO Weston Hicks, Alleghany has used a similar strategy to create an attractive, smaller-scale version of Berkshire.
Alleghany has well-run property and casualty insurance businesses that are capitalizing on widespread industry pricing gains. It has also accumulated a diverse group of increasingly profitable noninsurance divisions, including steel fabrication, toys, and funeral products.
Hicks, who turns 65 later this month, plans to retire at year end after 17 years as CEO. He will be succeeded by Joe Brandon, 62, an experienced insurance executive who headed Berkshire's General Re division from 2001 to 2008.
Alleghany shares, at about $674, trade cheaply, at just a small premium to third-quarter book value of $644. That is a discount to rival Markel, which has a bigger group of noninsurance businesses. Markel trades for 1.3 times book value, and Berkshire (BRK.B), at 1.4 times.
"Alleghany is undervalued; it's certainly worth more than book value," says Matthew Carletti, an analyst at JMP Securities who has an Outperform rating and a price target of $800.
Carletti calls Alleghany's largest division, TransRe, a "top-quartile reinsurer" and notes that companies similar to RSUI Group, Alleghany's specialty insurer, trade for ample premiums to book value. One example: W.R. Berkley ( WRB ). Reinsurers absorb risks from primary insurers like Chubb (CB) and Travelers (TRV).
Alleghany Capital, the collection of noninsurance units, has generated $175 million of net income over the past 12 months. Alleghany Capital is probably worth more than $2 billion, or double its carrying value. Carletti derives his price target from a sum-of-the-parts analysis and values the stock at a modest 1.1 times his year-end 2022 book value estimate.
Like Berkshire, Alleghany has a conservative balance sheet and maintains a low public profile. It doesn't hold quarterly earnings conference calls. Over the years, Hicks has written a wide-ranging and insightful annual shareholder letter, sending his final missive with the company's third-quarter earnings on Thursday.
Alleghany doesn't pay regular dividends, preferring buybacks and occasional special cash dividends, including a $ 15-a-share payment in 2020. The company has bought back about 2% of its stock in 2021.
Its shares are inexpensive as a result of losses from hurricanes and other catastrophes in recent years that have depressed results at its insurance units, particularly TransRe. With Hurricane Ida, European summer flooding, and other natural disasters, this year could be one of the five most costly for global reinsurers in this century, says Fitch Ratings.
Alleghany is expected to earn $46.25 a share this year, up from $15.89 in 2020, excluding gains on its equity portfolio and other adjustments. Next year is expected to be better, thanks to widespread insurance price increases. Carletti is projecting $70 a share.
The company aims to deliver 7% to 10% annual growth in book value. In the past five years, however, it has fallen short, at 6% annually. Still, it has averaged 8% during Hicks' tenure as CEO. "We can do a better job than we've done over the past five years, and we will," Hicks tells Barron's. "We have a shot at growing book value 10%-plus next year."
Brandon notes that investors have "left the reinsurance industry for dead" after years of large catastrophe losses. That has depressed Alleghany's valuation, which Brandon sees as an opportunity, given a better outlook at TransRe as it cuts catastrophe risk and gets higher rates.
Property and casualty insurance pricing is improving widely, as insurers seek to offset higher weather-related losses and low interest rates. Pricing is strong particularly for RSUI, a provider of excess and surplus insurance, which involves nonstandard policies covering such clients as multifamily property owners in the Southeast and nonprofit organizations. RSUI, for instance, issues liability coverage to a New York construction company for protection against accidents like a crane collapse.
The reinsurance market has also been robust, with Fitch recently projecting double-digit increases in property premiums for 2022. Alleghany has reduced its exposure to property losses to mitigate the impact of weather. TransRe's premium income rose 20% in the third quarter, relative to the year earlier, and by a similar amount in the first nine months of 2021.
One of the two most important businesses within Alleghany Capital is Jazwares, a top 10 toy maker with owned and licensed brands including Fortnite and Squishmallows. Revenue this year should top $800 million, more than double the 2019 level.
The other is W&W/AFCO Steel, a leading steel fabricator and erector for large and often complex construction projects, like the Sphere entertainment venue in Las Vegas, the Hudson Yards development in Manhattan, and Tesla's Nevada Gigafactory. It's also the No 1. steel fabricator for U.S. bridges.
With a better insurance market, an overlooked Alleghany looks set to start compounding book value at about 10% annually and regain investor favor.
https://www.barrons.com/articles/buy-alleghany-stock-berkshire-hathaway-pick-51636151493
Enterprising Investor
8 years ago
Alleghany Capital Corporation Announces Acquisition By Kentucky Trailer (11/16/16)
NEW YORK, Nov. 16, 2016 /PRNewswire/ -- Alleghany Capital Corporation ("Alleghany Capital"), a subsidiary of Alleghany Corporation, today announced that R.C. Tway Company, LLC ("Kentucky Trailer") has acquired select assets of Bussman Medical & Research ("Bussman"). Based in the Netherlands, Bussman specializes in the design and construction of modular solutions for the healthcare industry, including standard and hybrid operating theaters, endoscopy units, dialysis units, maternity suites, and pharmacies.
Gary A. Smith, Sr., President and Chief Executive Officer of Kentucky Trailer, commented, "The addition of the Bussman assets expands our existing capabilities in the mobile medical market and complements our acquisition of Smit Mobile Equipment ("Smit") in late 2015." Gerben Smit, Smit's Managing Director, added, "As a result of this transaction, we will be able to provide more integrated and comprehensive solutions to our European and global customers, while leveraging the manufacturing expertise Smit has built over the last 200 years."
David Van Geyzel, President and Chief Executive Officer of Alleghany Capital, stated, "This transaction will strengthen Smit's position in the global mobile and modular healthcare market and is consistent with Kentucky Trailer's strategy in its Specialty Vehicles segment. Alleghany Capital is pleased to support Kentucky Trailer as the company continues to execute on its bolt-on acquisition strategy."
About Alleghany Capital Corporation
Alleghany Capital Corporation sources, executes, and oversees certain investments and acquisitions for its parent company, Alleghany Corporation (NYSE: Y). Alleghany Capital's investments include: (i) Bourn & Koch, Inc., a manufacturer of precision machine tools and a supplier of replacement parts, cutting accessories, and services for a variety of cutting technologies; (ii) IPS-Integrated Project Services, LLC, a technical service provider focused on the global pharmaceutical and biotechnology industries; (iii) Jazwares, LLC, a licensed toy and consumer electronics company; (iv) R.C. Tway Company, LLC (dba Kentucky Trailer), a manufacturer of custom trailers and truck bodies for the moving and storage industry and other markets; and (v) Stranded Oil Resources Corporation, an exploration and production company focused on enhanced oil recovery. For additional information about Alleghany Capital Corporation, please visit www.alleghanycc.com.
About R.C. Tway Company, LLC
R.C. Tway Company, LLC is the parent company of four operating divisions: (i) Kentucky Trailer Manufacturing (KTM), which designs, builds and manufactures custom trailers and truck bodies for the moving and storage, snack food, package delivery and logistics industries as well as other niche markets; (ii) Kentucky Trailer Services (KTS), which delivers complete repair, reconditioning, paint, graphics, and other services for truck bodies, drop frames and expandables; (iii) Kentucky Trailer Specialty Vehicles (KTSV), which designs, builds and services trailers and custom specialty vehicles for mobile medical, television/broadcast, military/government, mobile marketing, motorsports and other niche markets; and (iv) Kentucky Trailer Finance (KTF) which provides the company's customers rental, lease and financing options for select products and markets. For more information, please visit www.kytrailer.com.
About Bussman Medical & Research
Bussman Medical and Research, based in the Netherlands, is an established design, build, and installation provider of complex modular solutions to a wide variety of markets with a special emphasis on the healthcare sector. For more information, please visit www.bussman-mr.com.
http://www.prnewswire.com/news-releases/alleghany-capital-corporation-announces-acquisition-by-kentucky-trailer-300363686.html
Enterprising Investor
8 years ago
Alleghany Capital Corporation Announces Acquisition Of Diamond Technology Innovations By Bourn & Koch (10/05/16)
NEW YORK, Oct. 5, 2016 /PRNewswire/ -- Alleghany Capital Corporation ("Alleghany Capital"), a subsidiary of Alleghany Corporation, today announced that Bourn & Koch, Inc. ("Bourn & Koch") has acquired Diamond Technology Innovations, Inc. ("DTI"). Headquartered in Olympia, Washington, DTI is a leading manufacturer of waterjet orifices and nozzles as well as related products.
Terry Derrico, President of Bourn & Koch, commented, "The acquisition of DTI enhances Bourn & Koch's existing business in machine tool consumables and spare parts and provides an entrance into the waterjet market, one of the faster growing segments within the machine tool industry. We are excited to partner with the talented team at DTI and believe that both companies' employees, suppliers, and customers will benefit from this combination. Ted Jernigan will continue at DTI in his role as President and the company's day-to-day operations will not be impacted by the transaction. As part of the Bourn & Koch family, DTI will be well positioned to accelerate its growth by leveraging our presence within the global machine tool market and the resources of Alleghany Capital."
"Backed by over 30 years of experience, DTI is the leader in research, development, and service within the precision aligned orifice market," stated Mr. Jernigan. "Through this transaction, DTI will be able to build on its proven track record of quality, innovation, and growth within the diamond orifice market and broader waterjet industry. We are pleased to have found a long-term home for the company and are excited about the opportunities that will result from this transaction."
David Van Geyzel, President and Chief Executive Officer of Alleghany Capital, added, "This transaction expands Bourn & Koch's product portfolio and reach within the global machine tool market and is consistent with the company's acquisition strategy. We look forward to supporting Bourn & Koch and DTI as they continue to provide innovative and mission-critical solutions to their customers."
Reynolds Advisory Partners, a Los Angeles-based boutique investment bank, represented DTI in the Transaction and Blue River Financial Group, Inc. identified the opportunity for Alleghany Capital. Lane Powell PC acted as legal counsel to DTI and Olshan Frome Wolosky LLP acted as legal counsel to Bourn & Koch.
About Alleghany Capital Corporation
Alleghany Capital Corporation sources, executes, and oversees certain investments and acquisitions for its parent company, Alleghany Corporation (NYSE: Y). Alleghany Capital's investments include: (i) Bourn & Koch, Inc., a manufacturer and remanufacturer of precision machine tools as well as a supplier of replacement parts and related services; (ii) IPS-Integrated Project Services, LLC, a technical service provider focused on the global pharmaceutical and biotechnology industries; (iii) Jazwares, LLC, a licensed toy and consumer electronics company; (iv) R.C. Tway Company, LLC (dba Kentucky Trailer), a manufacturer of custom trailers and truck bodies for the moving and storage industry and other markets; and (v) Stranded Oil Resources Corporation, an exploration and production company focused on enhanced oil recovery. For additional information about Alleghany Capital Corporation, please visit www.alleghanycc.com.
About Bourn & Koch, Inc.
Bourn & Koch, Inc., a subsidiary of Alleghany Capital Corporation, is a manufacturer and remanufacturer of precision machine tools as well as a supplier of replacement parts and related services. The company's products include: (i) gear hobbing, shaping, and grinding machines; (ii) vertical turning and vertical grinding centers; and (iii) boring, rotary transfer, multi-spindle, inspection, and other specialty machines. Bourn & Koch's portfolio includes well-known brands including Acme, American Tool, Barber Colman, Blanchard, Brown & Sharpe, Bullard, Conomatic, DeVlieg, Fellows, Ferguson, Futuremill, J&L, Mattison, Motch, MWMC, New Britain, Springfield, Rockford Machine Tool, Roto-Tech, and White-Sundstrand. For additional information about Bourn & Koch, please visit www.bourn-koch.com.
http://www.prnewswire.com/news-releases/alleghany-capital-corporation-announces-acquisition-of-diamond-technology-innovations-by-bourn--koch-300339422.html
Enterprising Investor
8 years ago
Alleghany Invests by the Book (5/14/16)
The insurer’s book value has grown 8%-plus annually for the past 11 years, and shares have followed.
By Andrew Bary
Under the leadership of Weston Hicks, Alleghany has built an impressive company focused on property-and-casualty insurance and investments, which resembles a small-scale Berkshire Hathaway . Book value has grown at a consistent 8.2% annual rate over his 11 years at the helm, about a percentage point better than the performance of the Standard & Poor’s 500 index.
That record hasn’t gotten a lot of reward on Wall Street, however. While the stock (ticker: Y) is up 10% this year, to $526, it trades for only a small premium to its March 31 book value of $503 a share.
By comparison, Markel (MKL), a better-known P&C insurer with an investment focus, trades for $960, or nearly 1.6 times book. That’s a steep premium even given Markel’s better growth. But it suggests that there’s plenty of room for Alleghany shares to appreciate. What’s the upside? If book value continues to grow at an 8% clip and Alleghany gets valued at 1.1 to 1.2 times book, the stock would trade around $625 in a year, a nearly 20% gain. On a sum-of-the-parts basis, Alleghany is worth at least $600 a share, Barron’s estimates.
The New York–based company has a market value of about $8 billion. It earned nearly $32 a share from operations last year and $9.32 in the first quarter, up from $8.19 in the year-earlier quarter.
Hicks isn’t an attention seeker. The company doesn’t hold earnings conference calls, and has scant analyst coverage. As a result, Alleghany has a low profile in the investment community.
The company’s stated goal is to generate 7% to 10% annual growth in book value over the long term. But that’s a challenging objective in an “environment of low interest rates, negligible inflation, maybe deflation,” CEO Hicks conceded in an appearance at a BofA-Merrill Lynch insurance conference earlier this year. Nor does it help that competitive conditions in the P&C market are difficult. The industry is sitting on too much capital, and insurance buyers increasingly can turn to alternative structures like catastrophe bonds for their needs. All of this puts pressure on pricing.
“Weston Hicks has done an excellent job of protecting and growing book value over more than 10 years,” says Larry Pitkowsky, a portfolio manager at GoodHaven Capital Management, an Alleghany holder. “Alleghany has been opportunistic on the acquisition front, cautious on the investment side, and it has allocated capital well. The company has opportunistically bought back stock when it traded below book value”—4% of shares outstanding in the past five quarters.
Barron’s wrote favorably on Alleghany 4½ years ago (“Alleghany Finds Its Elephant,” Nov. 26, 2011), when the stock traded around $275.
ALLEGHANY’S TWO MAIN businesses are TransRe, a global reinsurer, and RSUI, a property-and-casualty insurer that focuses on higher-risk, specialized situations that big insurers like Chubb (CB) and Travelers (TRV) typically avoid. Alleghany bought RSUI in 2003 for $626 million. It purchased TransRe for $3.5 billion in cash and stock in 2012, outbidding Berkshire Hathaway (BRK.A). Both deals have been winners. The insurers have generated significant profits, which Alleghany has reinvested in their operations and used to repurchase stock and invest in a group of noninsurance business. Alleghany doesn’t pay a dividend.
Four years ago, Hicks recruited former Berkshire Hathaway insurance executive Joe Brandon to head the Alleghany insurance operations, and the results have been excellent. TransRe, Alleghany’s largest insurance division, has generated an underwriting profit margin of 10% since 2012, considerably better than the industry average. TransRe has exposure to aviation, marine, and mortgage insurance, as well as property risks.
RSUI has produced a very attractive underwriting profit margin of 18% since 2003. Hicks attributes that to a culture in which underwriters are paid based on the long-term profitability of the business they generate. This contrasts with other insurers where sales volume factors into compensation. RSUI is willing to accept less business when pricing is soft, and that was the case in the first quarter, when premiums declined 8.9%.
Alleghany’s favorable results have come despite a conservative risk posture. It would take the smallest hit to equity from a large catastrophe with a 1% chance of occurring among a group of P&C insurers, according to a recent study by insurance specialist Dowling Partners. Alleghany would lose 6.5% of equity, half the average of the group that included XL Group and Everest Re Group.
Alleghany carries several risks, including poor underwriting decisions, a drop in the stock market and higher rates, which would depress its $14 billion bond portfolio.
Alleghany’s $3 billion equity portfolio is tilted toward high-quality stocks, including Visa (V), Walt Disney (DIS), Alphabet (GOOGL), and CVS Health (CVS).
Like Berkshire and Markel, Alleghany has plowed insurance profits into a group of noninsurance businesses. It has about $600 million allocated to a division called Alleghany Capital. Its investments include Stranded Oil Resources, which seeks to extract oil from old fields; Kentucky Trailer, which makes customized truck trailers; and Jazwares, a toy company. Profits at Alleghany Capital so far are modest.
LIKE BUFFETT, Hicks pens an honest and insightful shareholder letter. Earlier this year, he wrote that Alleghany is positioned conservatively, given high asset prices and challenging conditions in many insurance markets: “For the long-term stockholder, we aim to produce attractive real returns with a very low chance of permanent capital loss.”
One issue is whether Alleghany would consider a merger with an offshore insurer in order to reduce its tax bite, which was about 26% last year. “We’re always open to strategic moves that make sense from a business point of view,” Hicks said last week, noting that he opposes anything dictated primarily by taxes.
Since joining Alleghany in a senior role in 2002, Hicks, now 59, has taken a company with $1.4 billion in capital and no major operating businesses to one now with two sizable insurers, other businesses, and $7.8 billion of equity capital. “I feel fortunate to have this job,” he told Barron’s. “I want to finish this movie.”
Based on the results so far, the movie may have a happy ending.
http://www.barrons.com/articles/alleghany-invests-by-the-book-1463197522
Pre-publication closing price: $528.07
ChitForBrains
13 years ago
On June 14, 2011, Laredo Oil, Inc. (“the Company”) entered into several agreements with Stranded Oil Resources Corporation (“SORC”), an indirect, wholly owned subsidiary of Alleghany Corporation (“Alleghany”), to seek recovery of stranded crude oil from mature, declining oil fields by using the Enhanced Oil Recovery (“EOR”) method known as Underground Gravity Drainage (“UGD”). Such agreements consist of a License Agreement between the Company and SORC (the “License Agreement”), a License Agreement between the Company and Mark See, the Company’s Chairman and CEO (the “MS-Company License Agreement”), an Additional Interests Grant Agreement between the Company and SORC, a Management Services Agreement between the Company and SORC (the "MSA"), a Finder’s Fee Agreement between the Company and SORC and a Stockholders Agreement among the Company, SORC and Alleghany Capital Corporation, each of which are dated June 14, 2011 (collectively, the “Agreements”).
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