White Mountains Buys Off Warren Buffett (WTM, BRK/A)

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White Mountains Insurance Group, Ltd. (NYSE: WTM) entered an exchange agreement with Berkshire Hathaway Inc. (NYSE: BRK-A) to transfer certain runoff businesses and a substantial amount of cash to Berkshire Hathaway, and this will allow it to take back it 16.3% stake or some 1.7242 million shares owned by Berkshire Hathaway. 

Warren Buffett & Co. will get 100% of a White Mountains subsidiary, which will hold Commercial Casualty Insurance Company, International American Group, Inc., and $751 million in cash before adjustments. 

This group had combined gross assets of about $435 million and shareholder’s equity of $58 million.  This will act to reduce the outstanding common shares of White Mountains would be reduced to approximately 8.8 million shares and also allows White Mountains to exit runoff businesses with potentially volatile reserves.  It also allows it to reduce undeployed capital and to redeem about one-sixth of the company’s shares at a small premium to GAAP book value. 

The value of the transaction is listed roughly $836 million at $485 per share.  White Mountains and Berkshire Hathaway expect no substantial taxable gains in the exchange and this has been approved by both companies.  White Mountains closed at $478.00 per share on Friday.

This is one of the more odd transactions out there, but Berkshire Hathaway has been making more difficult financial transactions and new businesses in the new markets that can capitalize off of the liquidity and credit crunch that has affected the markets and the economy.

Jon C. Ogg
March 10, 2008