Mini-Berkshire Hathaway Acquiring a Competitor: Markel Corporation (MKL)

Page 1 of 2

Markel Corporation (NYSE:MKL) entered into an agreement to acquire Alterra Capital Holdings Ltd (NASDAQ:ALTE) on December 19, 2012 for what works out to about $30 per share, around a 34% premium to the share price prior to the announcement and 1.07x tangible book value.  Each Alterra Capital Holdings share will get converted to 0.04315 shares of Markel plus a cash payment of $10.  The Boards of both companies have approved the merger agreement.

The shares of Markel reacted negatively following the announcement, dropping 12% to $428 before rebounding over the past month to $469.  The negative reaction was likely due to concerns around integration of the two companies, general disapproval and possibly some hedging activities.   The shares of Alterra now trade at $31 per share, increasing recently possibly behind a lawsuit filed on behalf of shareholders seeking a higher price.

Markel Corporation (NYSE:MKL)

Markel summary

Markel operates in specialty insurance where it benefits from less competition.  It has revenues of $2.9 billion and a 7.4% ROE.  Since 2001, premiums have grown by a CAGR of 12% at Markel.  Offerings include insurance on distinctive risks like racehorses.  Markel’s limited market results in fewer premiums to spread expenses over.  This negatively impacts profitability compared with a carrier that has a wider range of higher volume insurance products.  Markel sells their products through independent brokers and operates in three segments:  Excess and Surplus lines, Specialty Admitted, London Markets.

Merkel holds a larger than normal amount of equity security investments.  It is sometimes called a mini-Berkshire-Hathaway -B).  Berkshire is much larger in market cap ($250 billion vs $4.5 billion), but they operate in many similar insurance markets.  Plus, with Buffett steering Berkshire, they have done very well investing the insurance premium float in securities.  This can increase returns, but this does result in a higher risk level and volatility to earnings.  Key competitors are Cna Financial Corp (NYSE:CNA)The Travelers Companies, Inc. (NYSE:TRV) and Meadowbrook Insurance Group, Inc. (NYSE:MIG).

Alterra Capital Holdings Ltd (NASDAQ:ALTE) summary

Alterra is an insurance company that provides specialty insurance and reinsurance products to institutions.  It operates in five segments:  Insurance, Reinsurance, U.S. Specialty, Alterra at Lloyd’s, Life and Annuity Reinsurance.  It has operations in the US, Europe and Latin America.   Some of the end markets Alterra participates have less favorable dynamics – more competitive – than those in specialty.  The products are more of a commodity.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!