Buffett takes on "the Skim"

Buffett needed two weeks for $11.6 billion Alleghany purchase, balked at Goldman fee

NEW YORK (Reuters) - Warren Buffett needed just two weeks to put together Berkshire Hathaway Inc’s $11.6 billion takeover of Alleghany Corp, its largest acquisition in six years, even as he balked at paying the insurer’s banking fee, a regulatory filing on Monday shows.

Alleghany said its Chief Executive Officer Joseph Brandon met with Buffett for dinner in New York City on March 7, where after some “casual conversation” Buffett offered $850 per share in cash for the company, less the fee for bankers at Goldman Sachs.

Five days later, Brandon and Alleghany Chairman Jefferson Kirby met Buffett in Omaha, Nebraska, where Kirby asked Buffett to make a higher offer, pay Goldman’s $27 million fee, or use Berkshire stock to fund part of the purchase.

“Mr. Buffett reiterated the terms of his original offer, indicating firmly he did not intend to change his position on those points,” the filing said.

Berkshire, which is based in Omaha, ultimately agreed to pay $848.02 per share, with the $1.98 difference from $850 accounting for Goldman’s fee.



Yep WEB played hardball about twenty years ago with two major banking houses over one of his acquisitions. The fees at that time were cut by about two thirds. The initial fees were possibly somewhere over $100 millions. Buffet at that time publicly shamed the bankers. The two major banks were scared off.

Why are bankers even involved in the first place? It’s not as if Berkshire needs a loan to make this happen…

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Why are bankers even involved in the first place? It’s not as if Berkshire needs a loan to make this happen…

Legal bureaucracy. Stock ownership records are maintained electronically–so there is a cost to changing who owns what on that system. Plus, banks may have helped the seller (but not the buyer). So the seller pays the fee (which is what happened in the above transaction).

Why are bankers even involved in the first place? It’s not as if Berkshire needs a loan to make this happen…

Hey, corporate bankers have to live on the paltry salary plus fees and bonus you know? Eldest daughter’s eldest son got accepted at Middlebury as a ‘Recruited Althlete’ (Track & Field). That place ain’t cheap yah know! I get the impression the recruited althlete Track and Field gets you in but doesn’t pay tuition?

Anyway the family sounds excited. He has two younger brothers. Since they are all dual citizens they could have gone to Dal (where both parents graduated) fairly cheap but that would involve putting up with nasty winters and the grandparents keeping an eye on them. Of course Middlebury is not far from Montreal and winters there are no picnic.


Legal bureaucracy.

So call the fire briga… a lawyer.

Why are bankers even involved in the first place? It’s not as if Berkshire needs a loan to make this happen…

Presumably Alleghany signed up GS to look for’ buyers, but do it confidentially before Buffett was involved. When Buffett emerged it looks like they didn’t need to, but the deal has a “right to improve” clause for a month or so, so someone else could make a bid.

Putting together a bid in a few weeks is fraught, unless GS (or some other) has done the due diligence ahead of time and is prepared to answer questions from potential investors, which Alleghany may not be, or which a potential suitor may require an “independent” look-see rather than just relying on management assurances.

Yes, it’s an outrageous fee, but it’s not as though all they do is pick up the phone and make three phone calls.

I repeat, yes, it’s an outrageous fee, but that’s how it works in that airy field.

And, of course, there’s. Lot of follow-on work in contacting shareholders, reassigning certificates, etc. More work than I want to do, but for $27,000,000 I might change my mind.

Why are bankers even involved in the first place?

For the same reason one might use a professional to facilitate the private sale/transfer of personal real estate, even when lending is not involved.


Now since Buffett’s entire company is basically the business of mergers and acquisitions, he likely derives little value from these services but the company he is buying likely has a lot less experience with that activity - which is why they appear to be adamant (to the point of paying for it themselves) that they be represented.

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