American Equity Agrees To Sell 20% Stake To Brookfield, Snubbing Athene's Takeover Bid

Insurance company American Equity Investment Life Holding Company (NYSE: AEL), has agreed to a strategic partnership with Brookfield Asset Management Inc BAM, which will reinsure up to $10 billion of American Equity's fixed index annuity products, and acquire a 19.9% stake in the company at $37 per share.

The Iowa-headquartered company has rejected the joint takeover bid from Athene Holding Ltd (NYSE: ATH) and Massachusetts Mutual Life Insurance Co for $36 per share in cash, received in September.

What Happened: Brookfield has agreed to re-insure American Equity’s $10 billion fixed index annuity liabilities, and buy a 19.9% equity stake at $37 per share. The asset manager will also be entitled to a position on American Equity’s board.

Brookfield's equity investment will take place in two stages. It will purchase 9.9% equity at $37 per share in the first phase, and buy an incremental 10% equity at $37 per share or adjusted book value, whichever is higher, in the second phase. 

American Equity’s board has also authorized a $500 million share buyback program, partially funded by the proceeds from the partnership and existing cash in hand.

The stock repurchase will offset the stock dilution from the issuance of common stock to Brookfield. The repurchase program is expected to begin in the fourth quarter of 2020.

Why Does It Matter: "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," said Anant Bhalla, President, and CEO of American Equity.

As a part of the new AEL 2.0 value creation strategy, this agreement will ensure that American Equity has access to a committed capital along with Brookfield’s expertise in alternative asset management strategies. It will also result in a gradual shift in AEL's business model — from Return on Equity to Return on Assets.

Price Action: AEL shares gained 0.34% to close at $32.29 on Friday.

Photo courtesy: American Equity