Should Warren Buffett spend $20 billion on PGR?

On Sunday, Warren Buffett said he wanted to buy a huge business -- in the $5 billion to $20 billion range. With $46 billion in cash and $90 billion of cash and fixed-income securities on its balance sheet, Berkshire Hathaway, Inc. (NYSE: BRK.A) can certainly afford to buy a huge business.

So... What should he buy? I say, Progressive Corp. (NYSE: PGR) for the following three reasons:

• Progressive is a leader in personal lines property/casualty: With 7.6% of the industry's $161 billion in net premiums written, PGR is one of the largest sellers of auto and homeowners' insurance in the country. With GEICO already part of BRK.A, this is an industry which Buffett knows and loves for its huge float -- the cash from insurance premiums that he can invest until a portion gets paid out as claims. If GEICO and PGR combined, they'd have about 14% of the market.
• Innovative Chairman may want to sell: Progressive has been an innovator that has pioneered ideas such as allowing customers to compare insurance prices online and using computers to settle claims faster. Its visionary Chairman, Peter Lewis, is 73 and Forbes estimates his net worth at $1.4 billion. With the stock down 12% in the last year, Lewis may be disaffected with his chosen successor and could view a sale to Buffett as a smart move.
• Price in range: Progressive's market capitalization is currently at $17.2 billion. If Buffett offered a 20% premium over the current price, he could pick up PGR for $20.6 billion -- just a bit above the range that Buffett had announced Sunday.

Even if Buffett doesn't buy PGR, I think it could be a strong holding. It just reported results that beat analysts' estimates by a penny and it was upgraded from a hold to a buy on stronger sequential and annual sales.

What other candidates would you nominate to soak up Buffett's $20 billion?

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.