Shortly after Berkshire Hathaway, Inc. (NYSE:BRK.A) CEO Warren Buffett spent $12 billion in cash last month to acquire 50% of H.J. Heinz Company (NYSE:HNZ), he told the world he was ready for more.
Of course, there’s certainly reason to believe the man given his past acquisition record; he spent $46.3 billion over the past seven years for Berkshire Hathaway, Inc. (NYSE:BRK.A)’s stakes in Iscar, Marmon, Burlington Northern, and Lubrizol.
With that in mind, I noted recently that it might be a good idea for Buffett to shell out some dough to acquire a much smaller financial holding company like Markel Corporation (NYSE:MKL).
Source: AP.
Today, I’d like to spend a little more time exploring that thought, so here are three big reasons Markel Corporation (NYSE:MKL) could be a great fit with Berkshire.
Markel Corporation (NYSE:MKL) sports a deep bench of management including CEO Alan Kirshner as well as president, CIO, and renowned value investor Tom Gayner. I’ve spent a little time analyzing their words over the last couple months, so I’ll reference you to those previous articles (see here and here) to get an idea of just how effectively they are running their business.
With this in mind, if Berkshire were to purchase Markel Corporation (NYSE:MKL) with its autonomous leadership team, we could rest assured Buffett would have no problem letting them continue doing what they do best, especially considering what he wrote in his 2009 letter to Berkshire shareholders:
We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree…Most of our managers, however, use the independence we grant them magnificently, rewarding our confidence by maintaining an owner oriented-attitude that is invaluable and too seldom found in huge organizations.
Additionally, Buffett later went on to shun the inefficiencies of “a stifling bureaucracy” — another stance with which (as I noted back in February) Markel’s Kirshner wholeheartedly agrees.
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Like Berkshire, Markel Corporation (NYSE:MKL) also operates a number of insurance subsidiaries, but instead with its current focus primarily resting on traditionally difficult-to-insure niche markets that range from specialty schools to museums, sports leagues, horses, health clubs, boats, and event cancellation (to name just a few).
In addition, last December, Markel Corporation (NYSE:MKL) announced its largest acquisition to date in buying rival insurer Alterra Capital Holdings Ltd (NASDAQ:ALTE), which greatly expands its insurance and reinsurance operations.
So how can this benefit the Oracle of Omaha aside from simply generating additional underwriting profits?
