American equity opts for brookfield tie-up

American Equity Investment Life Holding Co. confirmed it plans to launch a new partnership with Brookfield Asset Management Inc. after rejecting a proposed US$3 billion takeover from Athene Holding Ltd. and Massachusetts Mutual Life Insurance Co.

American Equity said in a statement that under the partnership, Brookfield will acquire a 19.9-per-cent stake in the insurer for roughly US$37 a share, or a 15-percent premium on where the stock closed Friday. Brookfield will also take a seat on American Equity's board as part of the arrangement, the firms said in separate statements, confirming an earlier report by Bloomberg News.

“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, American Equity's chief executive, in the statement.

American Equity also formally rejected a US $36a-share takeover proposal from Athene and Mass-Mutual on the grounds that it undervalues the company and is opportunistic. American Equity said it believes its current strategy will maximize long-term value for shareholders.

“The board of directors and shareholders of American Equity will have to decide what is in the best interests of the company,” a representative for Athene said in an emailed statement. Athene's all-cash joint proposal with Mass-Mutual represents a large premium for shareholders and offers continuity for American Equity constituents, according to the statement. Following the decision, Athene will continue with the execution of its stand-alone strategy, it said.

A representative for Mass-Mutual was not immediately available for comment.

Shares in American Equity closed Friday a t US$32.30 in New York, valuing the company at roughly US$2.97 billion. The stock closed Monday at US$27.49, down 14.9 per cent on the day. The company's shares have climbed almost 47 per cent since the day before the proposed takeover from Athene and Mass-Mutual was made public Oct. 1.

Brookfield, one of the world's largest alternative asset managers, will make the investment in two tranches, the second half of which would be completed in early 2021, the companies said. The deal will also see Brookfield reinsure as much as US$10 billion in existing and future annuity liabilities, they added.

American Equity said it would concurrently launch a US$500-million share buyback program from the proceeds of the investment to offset the dilution the deal will have on existing holders because of the issuance of common shares to Brookfield.

The partnership will be Brookfield's largest foray yet into insurance. Last month, Bruce Flatt, Brookfield's chief executive, said at an investor day that he believed the time was right to expand into the sector with interest rates at zero. Over time, he said, the insurance sector could be a US$100-billion to US$200-billion business for his firm.

“We are pleased to be investing in American Equity and to partner with the business in reinsurance as it grows its leading position as a retirement-planning annuity provider,” said Sachin Shah, Brookfield's chief investment officer, in a statement.

“This transaction represents a meaningful investment for us in the attractive U.S. insurance market and we believe our alternative asset strategies can deliver long-term value to the company.”

Brookfield has roughly US$550 billion in assets under management,