For the second time in just over two years, American Equity Investment Life Holding Co. has rebuffed a hostile takeover ― though the battle may still be brewing.
The West Des Moines retirement funds provider, which employs about 800 people, recently disclosed that it had received two offers from private equity firm Elliott Investment Management last month. American Equity’s board rejected both deals.
However, a key American Equity investor described Elliott’s takeover bid as “a highly credible offer.” The investor, Brookfield Asset Management, which owns an 18% stake in American Equity, added in a regulatory filing that Elliott “is potentially interested in improving its offer.”
An Elliott spokesperson did not respond to an email seeking comment.
The latest news is part of a complicated saga involving the Iowa company and private equity firms that want to inject its $70 billion of assets into potentially lucrative investments. According to the Financial Times, American Equity is one of the only U.S. companies of its kind to resist private equity takeover attempts.
“AEL is the last remaining independent/standalone fixed indexed annuities player of scale,” Jefferies equities analyst Daniel Bergman wrote in a recent research note.
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American Equity board chair: Offer ‘significantly undervalues’ company
According to American Equity, Elliott offered to buy the company Dec. 8 for $45 a share, about $6 a share more than the stock’s value on Wall Street that day. The deal would have netted about $3.87 billion for all of the company’s common shares, a premium of about $515 million.
After American Equity’s board rejected the deal Dec. 12, according to a company news release, Elliott made the same offer again Dec. 19. The board rejected the deal the next day, as well.
“It significantly undervalues the company,” board chair David Mulcahy said in a statement. “The board strongly believes that the continued execution of our strategic plan, AEL 2.0, will generate significantly greater value for all shareholders.”
American Equity CEO Anant Bhalla said in a statement that American Equity has performed well since rolling out a new strategy in September 2020 that called for the company to invest in more private securities rather than the traditional slow-growth assets like bonds. From the time of that strategy announcement to Elliot’s first takeover offer, American Equity’s stock rose about 90%.
“Our board processes are thorough, and our management team remains laser-focused on serving our policyholders and generating value for shareholders,” Bhalla said.
But Elliott’s takeover came in the midst of a falling out between American Equity and Brookfield, a backer that was supposed to be a white knight when it reached an investment deal with American Equity in October 2020. At the time, Massachusetts Mutual Life Insurance Co. and West Des Moines-based insurer Athene were making an unsolicited offer to buy American Equity for $36 a share ― about 25% less than what Elliott recently offered.
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Board resignation catches American Equity’s CEO by surprise
As part of that deal, Brookfield received one of the 11 seats on American Equity’s board. But the company’s appointee, Brookfield Insurance Solutions CEO Sachin Shah, resigned from the board Nov. 8.
“There has been a fundamental change in the strategic direction of (American Equity), and that change in my view represents a material departure from the AEL 2.0 strategy,” Shah wrote in a letter. “As previously communicated, neither I nor Brookfield Reinsurance can support this change.
The resignation, which Brookfield made public in the middle of an American Equity earnings call, caught executives at the West Des Moines company flat-footed.
Asked by an analyst on the call about American Equity’s problems with Brookfield, Bhalla said, “We have a very solid relationship with Brookfield. I don’t know what you’re referring to.”
Later in the call, when an analyst asked if a recent event would have triggered Brookfield’s letter, Bhalla disclosed that American Equity in September invested in 26North, a new private equity firm started by former Apollo Global Management founder Josh Harris. Bhalla also entered into a reinsurance agreement with 26North, letting the company invest American Equity’s assets in exchange for a fee.
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On Dec. 6, a Brookfield executive sent a letter to American Equity, demanding that the company provide more details about its 26North relationship, including how much money American Equity invested and how big of a stake the company received. A Brookfield spokesperson declined to comment Thursday when asked whether American Equity’s leaders have answered that question.
During an investor event Dec. 7, Bhalla said Shah’s resignation from the board a month earlier had been in the works before the earnings call. He said Brookfield leaders agreed to replace Shah because Shah’s division of Brookfield had purchased American National, a competitor to American Equity.
He said Brookfield’s decision to announce Shah’s resignation in a filing during American Equity’s earnings call was “a complete shock.”
“You can come to your own conclusions about (Brookfield’s) motivations, but we believe its behavior and attitude towards our 26North transaction and our AEL 2.0 strategy more generally should be viewed through this lens,” Bhalla said.
According to American Equity’s financial reports, Brookfield paid about $587 million for its stake in the company in 2020. The Elliott offer, if accepted by American Equity, would have represented a profit of about $128 million.
On Dec. 21, the day after American Equity announced that its board had rejected Elliott’s offer, Brookfield announced it would put a new member on the board.
“We intend to exercise our right to nominate a replacement director,” the company said.
Tyler Jett covers jobs and the economy for the Des Moines Register. Reach him at tjett@registermedia.com, 515-284-8215, or on Twitter at @LetsJett.
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