(Bloomberg) — Warren Buffett is back making deals thanks to a more volatile stock market and some very well-known assets.
His Berkshire Hathaway Inc. announced a $11.6 billion deal on Monday to acquire Alleghany Corp. in the wake of massive purchases of common stock of Occidental Petroleum Corp. giving it an approximately $7.2 billion stake in the oil giant. Buffett has put more of Berkshire’s $146.6 billion cash stack to work, aided by an S&P 500 index that has fallen nearly 6.4% through Friday this year.
The purchases follow a difficult few years for the Berkshire deal machine. High valuations stunted Buffett’s appetite for the multi-billion dollar trades that made him famous, while the uncertainty caused by the pandemic prompted the billionaire to dump airline stock. But for very domestic Berkshire, the impact of the volatility caused by the Russian invasion of Ukraine was less immediate. The conglomerate’s Class A shares are up 13.8% from late last year through Friday.
“In part, Buffett may be sending a signal to the world, to investors, to the financial markets that even in this current environment of great uncertainty, he still believes there are great opportunities to invest in at least US companies in the future. to invest. said David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business.
Both the Alleghany acquisition and the Occidental stock purchases are familiar areas for Berkshire. Buffett, 91, already invested in Occidental through preferred stock and warrants acquired in 2019. Alleghany’s main focus, insurance, is considered one of Berkshire’s “Big Four” businesses and has contributed to the conglomerate’s success.
“This is a unique situation because the Alleghany business is so complementary to Berkshire,” Edward Jones analyst Jim Shanahan said of the deal.
Berkshire is well acquainted with the management team it gets from Alleghany. Joseph Brandon, 63, currently Chief Executive Officer of Alleghany, previously led Berkshire’s Gen Re unit. That could help deepen Berkshire’s talent insurance bank, which is headed by Berkshire vice chairman Ajit Jain, according to Shanahan.
Alleghany also maintains some investments in industrial companies through its Alleghany Capital unit. That includes operations such as the cutting company Precision Cutting Technologies, and a funeral and cemeteries service company with Wilbert Funeral Services Inc., according to its website.
According to Bloomberg Intelligence’s Matthew Palazola and Kylie Towbin, Berkshire, which owns a metal cutting tool business through IMC International Metalworking Cos., is essentially getting a “mini-me” with the Alleghany deal.
“The insurance business is made to order for Berkshire,” Buffett said in his annual shareholder letter in February. “The product will never be obsolete and sales volume will generally increase along with both economic growth and inflation. Also, integrity and capital will forever be important. Our company can and will behave well.”
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This post Buffett’s Drought Deal Ends With $11.6 Billion Alleghany Buy was original published at “https://www.bloombergquint.com/business/buffett-s-deal-drought-ends-with-11-6-billion-alleghany-buy”