Warren Buffett's disdain for investment banking 'money-shufflers' leads to lower takeover price for Alleghany Corp. shareholders

• Warren Buffett's disdain for investment bankers led to a lower takeover price for Alleghany shareholders.
• Buffett offered Alleghany $850 per share, less any investment banking fees the insurance company might incur.
• The end result was an offer price of $848.02, about $27 million less than Buffett proposed.

Warren Buffett has never had a favorable view of investment bankers, and that was on full display with Berkshire Hathaway's takeover of Alleghany.

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 for $850 per share, less any and all investment banking fees Alleghany incurs during the deal-making process.

"Each Share issued and outstanding immediately before the Effective Time will be cancelled and extinguished and be converted into the right to receive $848.02 in cash, representing $850.00 per Share less the financial advisory fee due to the Financial Advisor in connection with the Merger," the SEC filing said.

Bloomberg reported that Buffett specifically cautioned Alleghany that he did not want Berkshire footing the bill for its investment banking fees, citing a person with knowledge of the matter. The end result is Buffett subtracting $27 million, or the fee Alleghany is paying Goldman Sachs to be its advisor during the deal process, from the takeover price.

Buffett's view against investment bankers was laid out in Berkshire Hathaway's 2014 annual letter to investors, in which he said, "Money-shufflers don't come cheap."

"A lot of mouths with expensive tastes then clamor to be fed – among them investment bankers, accountants, consultants, lawyers and such capital-reallocators as leveraged buyout operators," Buffett added in the letter, which was released in 2015.

Buffett himself often completes takeover deals for Berkshire Hathaway without the use of an investment bank. Instead, the conglomerate has relied on the previous law firm of Berkshire's vice chairman, Charlie Munger, for advice on deals.

But there is one investment banker that Buffett has no problem paying, and that's former Goldman Sachs managing director Byron Trott. Buffett relied on Trott when Berkshire acquired food distributor McLane from Walmart in 2003 for about $1.5 billion.

"I should add that Byron has now been instrumental in three Berkshire acquisitions. He understands Berkshire far better than any investment banker with whom we have talked and – it hurts me to say this – earns his fee," Buffett said in Berkshire's 2003 letter, which was released in 2004.