Apollo reabsorbs Athene in the $ 11 billion shareholding transaction

It is also the latest step in Apollo’s attempt to improve its governance following disclosures between co-founder and CEO Leon Black and disgraced financier Jeffrey Epstein.

The move comes as Apollo co-founder Marc Rowan, the company’s insurance strategy architect, prepares to take on the role of CEO. Mr Black said in January that he would resign following a board review of his ties to Epstein, who committed suicide in his Manhattan prison cell in 2019 after being charged with federal sex trafficking charges involving underage girls. .

The investment firm has announced a number of governance changes recently, including the appointment of several independent directors. Apollo said Monday that its board voted to abandon the company’s dual-class shareholding structure and adopt a “one-share, one-vote” regime – an action it said it was considering and expecting. pave the way for its inclusion in the S&P 500 index.

Each remaining Athene Class A share will be exchanged for 1,149 Apollo shares, reflecting a premium of approximately 16.5% over Athene’s closing price on Friday.

The share agreement will result in Apollo shareholders owning about 76% of the combined company, and Athene investors owning the rest.

The deal would be more than double the earnings reported by Apollo in 2020, the companies said. Shareholders will receive a fixed annual dividend of $ 1.60 per share.

Apollo hopes that the efforts will help support the price of its shares, which it has signaled amid investor concerns about Mr Black’s Epstein ties, which will prevent pension funds and other institutions from considering investing more money in its funds. Apollo currently manages over $ 450 billion and has set a goal in 2019 to bring this to $ 600 billion within five years.

Shares of Apollo fell nearly 4 percent Monday morning, while Athene rose about 8 percent.

Investors have long worried about Apollo’s dependence on Athene as its largest asset management client, accounting for about 40% of its assets under management and generating about 30% of its commission-related revenue.

For Athene, the combination is the latest evolution since it was founded in 2009 with the support of Apollo. The insurer has become one of the nation’s largest holders of fixed nations, a risk-saving pension product favored by risk aversion and, in many cases, older Americans.

Athene was built under the former executive of American International Group Inc. James Belardi, who, financed by Apollo, bought cheap fixed annuity blocks following the financial crisis. The investment firm was contracted to choose the investments to support Athene’s obligations to pay consumers.

Mr. Belardi quickly made newcomer Athene a major driver of consolidation in the US life insurance industry, acquiring tens of billions of dollars in assets. Since last year, it has had net assets of $ 150 billion.

It went public in 2016 and had a market capitalization of just over $ 10 billion before the merger plans were announced.

In Athene’s early years, Apollo held 17%, but controlled 45% of the vote in an agreement that prompted some potential insurer shareholders to stop due to concerns about conflicts of interest. Apollo in 2019 increased its stake in Athene to 35% and eliminated the shares of the insurance company’s supervision. Athene also took a 7% stake in Apollo.

In a conference call to discuss the deal, Mr Belardi, now president and CEO of Athene, said the insurer had a strong year in 2020, despite the coronavirus pandemic. However, he said, “despite our success and the many competitive advantages we have, it is clear and quite unfortunate” that some shareholders were concerned about buying the share. The merger is “the next logical step” for Athene to address these concerns and become stronger and more solvent, he said.

Athene’s focus on fixed annuities – which pay buyers’ interest over a period of years – matches Apollo’s credit investment expertise. Insurers profit by earning more from investments that support products than what they ultimately pay their customers. The guidelines of the state insurance department orient the insurers towards investment securities, but the companies have a margin of maneuver in building their portfolios.

Over the past decade, many insurers have unloaded their annuity companies at discounted prices because extremely low US interest rates since the global financial crisis have made it harder to make money.

Athene was at the forefront of lifting debris. Working with Apollo as an asset manager, the concept was that he could earn more money by investing customers’ money than traditional policyholders, thanks to the greater access he enjoys to so-called higher-yield alternative investments.

Athene has also become a prominent insurer in a growing business called risk pension transfer, in which employers with old-fashioned pension plans have entered into agreements with insurers to take responsibility for pensioners’ monthly benefits.

“Dave Sebastian contributed to this article.”

Write to Miriam Gottfried at [email protected] and Leslie Scism at [email protected]