Berkshire Hathaway Inc. is buying Alleghany Corp. for US$11.6 billion in cash as Warren Buffett returns to the dealmaking he has shied away from in recent years.

Buffett’s company will acquire all outstanding Alleghany shares for US$848.02 each in cash. The transaction represents a 29 per cent premium to the New York-based insurer’s average stock price over the last 30 days, and a 16 per cent premium to its 52-week high closing price, the firms said in a statement Monday.

With the Alleghany deal, Buffett is diving deeper into the world of insurance, an industry that has been key to the growth of Berkshire into a conglomerate with a market value of more than US$750 billion. Omaha, Nebraska-based Berkshire will gain a large property-casualty insurer that also has reinsurance operations through its Transatlantic Holdings Inc. unit. Alleghany is run by Joseph Brandon, previously chief executive officer of a Berkshire insurer, General Re.

“Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years,” Buffett, Berkshire’s CEO, said in the statement. “I am particularly delighted that I will once again work together with my longtime friend, Joe Brandon.”

The transaction is Berkshire’s largest since its 2016 acquisition of Precision Castparts Corp., according to data compiled by Bloomberg. That deal was valued at US$37.2 billion, including debt. Still, the Alleghany purchase price represents just 7.9 per cent of Berkshire’s stockpile of cash, leaving the billionaire investor with a big war chest for additional deals.

Buffett has been seeking ways to deploy some of his conglomerate’s cash -- almost US$150 billion in total -- into higher-returning assets, but has struggled to find attractive options given high valuations. He’s increasingly turned to stock buybacks, a capital-deployment move he largely shunned for decades, and earlier this month he built up Berkshire’s stake in Occidental Petroleum Corp.

The Alleghany deal terms include a “go-shop” period, during which the insurer can solicit and consider other acquisition proposals for 25 days, the companies said in the statement. The transaction, which was unanimously approved by both companies’ boards and has the support Alleghany Chair Jefferson Kirby, who holds 2.5 per cent of the insurer’s shares, is expected to close in the fourth quarter, subject to customary closing conditions.

Alleghany shares surged 26 per cent at 9:35 a.m. in New York, while Berkshire’s Class A shares gained 1 per cent.

What Bloomberg Intelligence says:

“Berkshire Hathaway’s agreement to acquire Alleghany for US$11.6 billion is right in CEO Warren Buffett’s comfort zone with complementary insurance and reinsurance operations, yet only consumes about 8 per cent of its cash on hand to leave ample capital flexibility.”

-- Matthew Palazola, BI senior industry analyst, and Kylie Towbin, BI associate analyst

Alleghany will continue to operate as an independent unit when it joins Berkshire. The two companies share a history of railroads and insurance. Alleghany was formed as a holding company for some railroad holdings in 1929, eventually diversifying into insurance, according to its website. Berkshire, which counts insurers from Geico to Gen Re among its businesses, also owns railroad BNSF.

Brandon previously ran Berkshire’s Gen Re unit before resigning in 2008. Gen Re was under scrutiny at the time, with four former executives convicted of helping American International Group Inc. deceive investors through a sham transaction, though those convictions were later overturned. Brandon, who wasn’t charged by the Justice Department or Securities and Exchange Commission, had no knowledge of fraudulent elements of the transaction, according to a person familiar with the matter, who asked not to be identified.

Buffett, in his 2008 letter to shareholders, thanked Brandon for “righting the ship” at Gen Re, which had been suffering from a loss of disciplined underwriting and expense management when he took over the reinsurer.