Share prices jump as deal seeks to settle bad blood
Brookfield, the Canadian private capital manager, has made a surprise $4.3 billion offer to acquire American Equity Investment Life (AEL), in a bid to expand its credit investing portfolio by adding retirement annuity and life insurance assets.
According to a securities filing on Tuesday, the AEL board has removed a "standstill" provision, allowing Brookfield to purchase additional company shares beyond its existing 20% stake. Brookfield has sent a letter to the AEL board of directors, stating that a definitive deal contract could be finalized by as soon as the end of this week.
AEL, headquartered in West Des Moines, Iowa, is one of the few remaining independent annuity operators amidst a wave of industry consolidation. The company holds over $70 billion in total assets. Private equity groups have been acquiring similar businesses to expand their investable assets, as annuity sales have soared – with a record $310.6 billion being sold last year, eclipsing 2008’s record.
As per the terms of the proposed transaction announced earlier today, Brookfield's listed insurance affiliate, Brookfield Reinsurance, plans to acquire AEL shares for $55 each in cash and stock. This offer represents a 35% premium over the closing price on Friday. Almost $40 of the per-share consideration will be paid in cash, while the remaining portion will be in shares of Brookfield Asset Management, a listed affiliate of Brookfield. BAM shares jumped over 1.5% on the news.
If the deal goes through, it would resolve a public dispute that arose last November. During that time, a Brookfield executive resigned from the AEL board, criticizing the company's CEO, Anant Bhalla, for what he perceived as a significant shift in AEL's strategic direction.
Previously, AEL had entered into a reinsurance agreement worth billions of dollars with 26North, a start-up private capital firm founded by former Apollo executive Josh Harris. AEL also purchased a $250 million stake in 26North. Brookfield raised concerns about these transactions and questioned their wisdom, suggesting that they were poorly conceived under Bhalla's leadership. AEL’s shares plummeted on the news, and AEL retaliated by reporting the Canadian company to the DoJ for an antitrust investigation.
AEL labeled Brookfield as a "direct competitor" and demanded their removal from the board. AEL argued that since Brookfield had acquired American National, a Texas-based life insurer, for $5 billion in 2022, they couldn't maintain a seat on the AEL board.
AEL has long been an attractive target for investment managers due to its status as one of the last major "fixed-indexed" annuities providers. This allows customer premiums to be invested in various complex corporate loans and other fixed-income assets, in addition to traditional bonds. In 2020, AEL rejected an unsolicited joint bid from Apollo's Athene unit, which had partnered with MassMutual.
During that time, Brookfield acquired a stake in AEL and entered into a reinsurance agreement, which gave them the responsibility of managing billions in AEL customer liabilities.
Bhalla took over as CEO of AEL in early 2020 and implemented a strategy known as "AEL 2.0." The strategy involved partnering with multiple alternative asset managers to more aggressively invest customer funds.
In late 2022, amid the corporate governance turmoil, AEL faced another unsolicited bid from Prosperity Life, a life insurer owned by Elliott Management. However, Prosperity withdrew its $4 billion offer early in 2023 after AEL's board rejected it.
Last year, Brookfield listed a minority stake in Brookfield Asset Management (BAM) to unlock its public market value. This move allowed Brookfield to have a currency to make purchases as the asset management industry continues to consolidate.
Brookfield Corporation is one of the world’s largest alternative investment management companies with close to $800 bn AUM. Founded in 1899, it is headquartered in Toronto, and headed up by CEO Bruce Flatt, who has been called “Canada’s Warren Buffet”.
America’s biggest annuity companies by sales (thousands)
- AIG Companies - 4,999,572
- New York Life - 4,469,006
- Jackson National Life - 4,245,176
- Equitable Financial - 3,713,783
- Allianz Life of North America - 3,248,299
- Massachusetts Mutual Life - 3,175,765
- Athene Annuity & Life - 2,882,745
- Lincoln Financial Group - 2,762,819
- Nationwide - 2,263,200
- Global Atlantic Financial Group - 1,953,842
- Pacific Life - 1,939,224
- Brighthouse Financial - 1,908,672
- TIAA - 1,890,776
- USAA Life - 1,569,061
- Prudential Annuities - 1,545,224
- Western Southern Group - 1,444,213
- Fidelity & Guaranty Life - 1,434,371
- Symetra Financial - 1,226,208
- Sammons Financial Companies - 1,178,573
- RiverSource Life Insurance - 1,068,801
(All figures Q1 2022)
