What happened
The share price of insurance company Alleghany (Y +0.00%) skyrocketed on Monday morning. As of 10 a.m. ET, the stock was up by 25% for the day, while the S&P 500 was modestly in the red.
NYSE: Y
Key Data Points
So what
What's driving Alleghany's upward move is simple and obvious. Berkshire Hathaway (BRK.A 1.24%)(BRK.B 1.33%) has agreed to buy it for $11.6 billion in cash, which works out to $848.02 per share.
This will be Berkshire's biggest acquisition since it picked up Precision Castparts in 2016, and it appears to be an excellent fit for the conglomerate. Insurance has been a cornerstone of Berkshire's business for decades, with GEICO, General Re, and several other insurance subsidiaries already operating under its umbrella. It's also paying a relatively modest premium to Alleghany's book value.
Image source: The Motley Fool.
Alleghany operates in several insurance markets, including reinsurance, which has long been a focus for Berkshire Hathaway. In fact, Alleghany CEO Joseph Brandon was formerly the head of Berkshire-owned General Re.
Now what
In response to the deal announcement, Berkshire Hathaway's shares also rallied a bit, and were trading up by about 2% at 10 a.m. ET. That's not necessarily because investors think this will be a needle-moving deal -- after all, Alleghany's acquisition price represents about 1.5% of Berkshire Hathaway's market cap.
However, investors in the conglomerate have experienced several years of frustration as they watched its cash stockpile grow due to a lack of what Warren Buffett viewed as compelling opportunities. So, it's fair to say that they're encouraged that Buffett and his team are finally finding ways to put a significant amount of that capital to work. Berkshire Hathaway will still have over $130 billion in cash on the books after this deal.
