Apollo Global Management said on Monday it will merge with Athene Holding Ltd in an US$11-billion all-stock deal, bringing in-house an annuities provider that helped turn it into one of the world’s largest corporate credit investors.
Apollo has been getting paid lucrative fees by Athene, in which it controls a 35-per-cent stake, for more than a decade, providing asset allocation services and directly managing a portion of Athene’s assets across its investment platform, primarily in its ever-expanding credit business.
Yet Athene’s shares underperformed the insurance sector after its stock-market debut in 2016, prompting a bid from Apollo for its assets.
Apollo estimated the tax-free combination could result in its earnings more than doubling from 2020. Its existing stake in Athene did not contribute to earnings under accounting rules, despite representing 40 per cent of Apollo’s assets under management and 30 per cent of its fee-related income.
A merger would allow Athene’s business and assets to be integrated into Apollo’s, providing both sides with enhanced earnings potential and a simpler ownership structure going forward, Marc Rowan, Apollo’s incoming chief executive officer, told an analysts call.
“This transaction is about coordination, not consolidation. There is no plan to consolidate the businesses. There is no need to consolidate the businesses,” said Mr. Rowan, who helped set up Athene in 2009.
Mr. Rowan, who co-founded Apollo 31 years ago, has been tasked with running the New York-based firm after board chairman Leon Black said in January he would step down as chief executive by July, after an independent review of his ties to the late financier and convicted sex offender Jeffrey Epstein.
Buyout firms have been increasingly focused on the insurance space, with KKR & Co., Blackstone Group and Sixth Street Partners all making significant acquisitions in the past year.
Under terms of the deal, each outstanding class A common share of Athene will be exchanged for 1.149 shares of Apollo common stock, representing a premium of about 16.5 per cent to Athene’s closing share price on Friday.
The company’s shares were up 6.6 per cent at $52.09 on Monday afternoon while Apollo shares were down 4.2 per cent at $47.50.
Existing Apollo shareholders will own about 76 per cent of the combined company, and Athene investors will own the rest. The deal is expected to be completed in January, 2022.
Apollo also said the conflicts committee of its board has approved changes that would result in a simpler, more transparent corporate structure that is expected to be put in place by January, 2022.
The private equity firm said last month it would look in to changing its corporate governance structure, getting rid of shares with special voting rights that currently give Mr. Black and other co-founders effective control of the firm.
Athene also serves as Apollo’s partner insurance company and had total assets worth US$202.8-billion at the end of 2020, with operations in the United States, Bermuda and Canada.
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