American Equity is rejecting a $3 billion takeover bid put forth earlier this month by MassMutual and is instead going into business with Brookfield Asset Management.
A leading seller of fixed index annuities, American Equity announced the Brookfield deal with a Sunday news release. Brookfield will acquire a 19.9% ownership interest in the common shares of AEL in two stages: an initial purchase of a 9.9% interest at $37 per share promptly following required regulatory approval, and a second purchase of an incremental 10% interest, at the greater value of $37 per share or adjusted book value per share.
The second equity investment is expected to close in the first half of 2021. Brookfield will receive one seat on American Equity’s Board of Directors following the initial equity investment.
Brookfield’s reinsurance and annuity subsidiary, Brookfield Asset Management Partners, will reinsure up to $10 billion in annuity liabilities, including an initial $5 billion of existing liabilities and up to an incremental $5 billion of future business when written.
In return, American Equity will receive coveted access to Brookfield’s alternative asset strategies, which positions the company "to generate sustained returns in a low-interest rate environment," the news release said.
“This compelling strategic transaction, which we have been discussing with Brookfield since March, demonstrates the substantial shareholder value we are creating through execution of our AEL 2.0 strategy," said Anant Bhalla, president and CEO of American Equity. "By partnering with a world-class asset management and investment firm like Brookfield, we are accelerating the implementation of our strategy to be the leading, customer-focused annuity provider with best-in-class capabilities across the entire insurance value chain, from distribution to asset management."
Meanwhile, the American Equity board of director recommended against the takeover bid engineered by MassMutual. Athene Holding and MassMutual offered $36 per share of common stock to acquire the company. The American Equity board was informed of the offer on Sept. 8, when Athene and MassMutual sent the company a letter.
American Equity called the MassMutual offer "opportunistic" and claimed that it "significantly undervalues the company."
MassMutual and Athene have plenty of money for the purchase, its letter said, especially with Athene's cash.
"Both Athene and MassMutual are extremely well-capitalized, and as such, this transaction will be financed with existing capital resources including excess capital position and access to other financing sources," according to the document. "Furthermore, Athene retains over $3 billion of excess capital on balance sheet with further access to $3 billion of undrawn capital in ADIP, its drawdown sidecar vehicle."
American Equity has been seeking a buyer for the past few years, with a potential deal falling through in early 2019.
American Equity’s board also authorized the repurchase of up to $500 million of common shares to be funded with the proceeds of the Brookfield equity investment and cash on hand. The repurchase is expected to offset dilution from the issuance of common shares to Brookfield. American Equity expects to commence the share repurchase after its third quarter earnings announcement.
In a bullish analysis published recently on Seeking Alpha, Courtney LaCalamito praised Brookfield for its diversified business model, strong balance sheet with ample liquidity, and sustainable dividend that likely will increase in the future.