According to a proxy filing with the SEC, Alleghany investigated the potential breakup of its business units in order to determine whether a potential sale or spin-out of one or more of its other subsidiaries could be a more appealing alternative to the Berkshire Hathaway deal.
Berkshire Hathaway, Warren Buffett's conglomerate and reinsurance company, announced in March that it will acquire all outstanding Alleghany shares for approximately $11.6 billion in cash.
Alleghany owns the global reinsurer TransRe as well as the insurance companies CapSpecialty and RSUI Group.
The agreed-upon purchase price is $848.02 per share in cash, which is slightly less than the $850 Warren Buffett actually offered, because costs associated with the work of investment banking firm Goldman Sachs are deducted from the purchase price due to a Berkshire proposal.
However, Alleghany believed the offer could have been higher, as evidenced by the proxy filing, in which its executives asked Buffett to consider raising the purchase price.
According to the filing, Jefferson W. Kirby, the Chair of the Board and a major shareholder in Alleghany, met with Buffett one-on-one and asked him to raise the price, or potentially eliminate the deduction to the merger consideration for the fee payable to Goldman Sachs.
It appears that neither was accepted, as the offer remained below $850 to account for the financial advice costs.
It is also now clear that there is no termination fee in the merger agreement, which means that if Alleghany finds another suitor from whom to accept an offer, it may breach the agreement, which Alleghany's Board found particularly favorable.
However, as we've previously stated, it's unlikely that anyone else would want to buy Alleghany as a whole, given that its diverse holdings would be unappealing to an insurance or reinsurance buyer.
Which makes it all the more intriguing that Alleghany considered how this could work in its favor, as it considered a potential break-up and sale of specific business units, presumably resulting in its insurance and reinsurance businesses being considered one part of the entity.
However, the Alleghany Board weighed the merits of Buffett's offer against a break-up or seeking an alternative buyer and "concluded that it would be in the best interests of the Company and its stockholders to secure the benefits of the proposed transaction with Berkshire, while retaining the ability to pursue and accept a superior proposal following the announcement of a transaction with Berkshire."
According to the proxy filing, during the "go-shop" process, 23 potential strategic bidders and 8 potential financial sponsor bidders were contacted about their potential interest in submitting a proposal for a transaction with Alleghany.
The go-shop period concludes on April 14th, leaving only a few days for any competing bids or alternative transactions to emerge.
Alleghany clearly desired a higher bid for the company, even approaching Warren Buffett directly. This implies that a strong bid for its insurance and reinsurance entities could still have been appealing to the company, but the challenges of finding that buyer remain, and time is running out.