Berkshire agreed to buy the insurance company for $11.6 billion in cash, or $848.02 per share. But according to SEC filings, the actual takeover deal is $850 per share, less any investment banking fees Alleghany incurred during the deal-making process.
“Each share issued and outstanding immediately prior to the Effective Time will be canceled and extinguished and will be converted into the right to receive $848.02 in cash, being $850.00 per share less any financial advisory fees due to the financial advisor in connection with the merger”, the SEC filing said.
Bloomberg reported that Buffett specifically warned Alleghany that he didn’t want Berkshire to foot the bill for his investment banking fees, citing a person with knowledge of the matter. The end result is that Buffett subtracts $27 million, or the fee Alleghany pays Goldman Sachs to be his adviser during the deal process, from the takeover price.
Buffett’s View Against Investment Bankers Exposed in Berkshire Hathaway’s annual letter 2014 to investors, in which he said, “Money brewers don’t come cheap.”
“Many mouths with expensive tastes are then clamoring to be fed – among them investment bankers, accountants, consultants, lawyers and capital reallocators such as leveraged buyout operators,” Buffett added in the letter, published in 2015.
Buffett himself often closes buyout deals for Berkshire Hathaway without using an investment bank. Instead, the conglomerate relied on Berkshire Vice Chairman Charlie Munger’s former law firm for transaction advice.
But there’s one investment banker that Buffett has no problem paying, and that’s former Goldman Sachs chief executive Byron Trott. Buffett leaned on Trott when Berkshire acquired food retailer McLane from Walmart in 2003 for around $1.5 billion.
“I must add that Byron has now been instrumental in three Berkshire acquisitions. He understands Berkshire far better than any investment banker we’ve spoken to and – it pains me to say this – earns his fees,” Buffett said. in Berkshire’s 2003 letter, which came out in 2004.