Fees and Flows, Brookfield to Takeover American Equity Investment Life

Posted on 07/05/2023

Increasingly, more asset managers are taking over insurance companies. The win is two-fold, greater asset management fees, and a cash-flowing insurance business. Brookfield Reinsurance (NYSE, TSX: BNRE) will acquire all of the outstanding shares of common stock of American Equity Investment Life Holding Company (NYSE: AEL) that it does not already own. This is a cash and stock transaction that values AEL at approximately US$ 4.3 billion.

As part of the agreement, each AEL shareholder will receive US$ 55.00 per AEL share, consisting of US$ 38.85 in cash and 0.49707 of a Brookfield Asset Management Ltd. (NYSE, TSX: BAM) (BAM) class A limited voting share having a value equal to US$ 16.15 (based on the undisturbed 90-day volume-weighted average share price (“VWAP”) of the BAM Shares on June 23, 2023), subject to adjustment in certain circumstances . The Merger Consideration of $55.00 per share represents a 35% premium to AEL’s undisturbed closing share price on June 23, 2023 and a 42% premium to AEL’s 90-day VWAP as of such date.

Brookfield Reinsurance made its initial investment in American Equity Investment Life Holding Company in 2020. Brookfield Reinsurance have now deployed or committed over US$ 10 billion of capital since its inception, bringing our total insurance assets to over $100 billion

Following closing, Brookfield Reinsurance expects to maintain AEL’s headquarters in Des Moines, Iowa and that growth in the AEL platform over time should increase net jobs in Iowa. Brookfield Reinsurance also intends to continue AEL’s focus on alternative asset strategies and expects Brookfield Asset Management will manage a significant portion of AEL’s assets. As a result, AEL will gain access to Brookfield Asset Management’s direct origination platforms and asset management capabilities while maintaining its current high-quality bias and investment grade focus.

Brookfield Reinsurance intends to acquire from Brookfield Corporation the BAM Shares required to satisfy the non-cash consideration offered to AEL shareholders. Subject to this occurring, BAM’s public float will increase by approximately 10%, which is strategically important as BAM continues to broaden its shareholder base and BN’s interest in BAM will decrease from 75% to approximately 73%. Accordingly, there will be no net new issuance of shares of BAM, BN or Brookfield Reinsurance and no dilution to BAM, BN or Brookfield Reinsurance shareholders as a result of this transaction. The cash portion will be funded from excess liquidity within Brookfield Reinsurance.

The transaction is not subject to any financing condition or contingency. Each of Brookfield Reinsurance’s and AEL’s boards of directors unanimously approved the merger agreement.

The merger is expected to close in the first half of 2024, subject to approval by AEL shareholders and other closing conditions customary for a transaction of this type, including receipt of insurance regulatory approvals in relevant jurisdictions and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Upon the closing of the proposed transaction, AEL Shares will be delisted from the New York Stock Exchange and shares of AEL’s series A noncumulative preferred stock (NYSE:AELPRA) and series B preferred stock (NYSE:AELPRB) will remain listed on the New York Stock Exchange.

Under the terms of the merger agreement, AEL has agreed to suspend the payment of dividends on its common stock through the closing of the transaction, unless the transaction does not close by April 4, 2024, in which case the AEL Board may decide to reinstate the payment of dividends on its common stock.

Barclays is serving as lead financial advisor to Brookfield Reinsurance and BMO Capital Markets is also acting as an advisor to Brookfield Reinsurance on this transaction. Cravath, Swaine & Moore LLP is serving as legal advisor to Brookfield Reinsurance and Debevoise & Plimpton LLP is serving as Brookfield Reinsurance’s insurance counsel.

Ardea Partners and J.P. Morgan are serving as financial advisors and Sullivan & Cromwell LLP is acting as legal advisor to AEL on this transaction.

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