Berkshire Hathaway to buy rest of Geico for $70 per share

Corporate Growth Report Weekly, Sep 11, 1995

Warren E. Buffets Berkshire Hathaway Inc. said it will spend approximately $23 billion, or $70 per share, to purchase the 49% of Geico Corp. it doesn't already own.

In an interview with CNBC, Mr. Buffett said he decided to buy the rest of Washington-based insurer now because Geico's previously reticent management agreed to the deal and because its prospects look very good. Mr. Buffett cited Geico's high-profit mains and low expenses. "What they do extremely well is deliver low-cost auto insurance," he said.

Mr. Buffett also said that Geico's insiders "were in favor of doing it as long as the price was substantial." The day before the acquisition agreement was announced, Geico's stock price was $55.75 per share. This means that Berkshire Hathaway's $70 per share offer is a 25.6% premium over that amount, which most analysts agree is a substantial premium for an insurance company.

Mr. Buffett said he would partially finance the purchase of Geico with some of the proceeds from $19 billion buyout of Capital Cities/ABC Inc. Currently, Berkshire Hathaway owns 20 million Capital Cities/ABC shares, which represent about a 13% stake. Because of this and current cash on hand, Mr. Buffet said that very little would have to be borrowed to finance the Geico acquisition.

The transaction must be cleared by insurance regulators in Maryland and New York, where Geico has insurance subsidiaries, and by holders of 80% of Geico shares. The transaction is expected to be completed in January 1996. Berkshire Hathaway said that no reduction in Geico's 8,000-employee work force is expected.