American Equity Investment Life Holding has agreed to a deal with Brookfield Asset Management, after rejecting a proposed $3 billion bid from Athene Holding Ltd and Massachusetts Mutual Life Insurance Co.
As part of the agreement, Brookfield (BAM) will acquire a 19.9% stake in American Equity in two installments. The asset management company will initially purchase a 9.9% interest at a price of $37 per share and then an incremental 10% interest at the greater value of $37 per share or adjusted book value per share. The deal also requires Brookfield to reinsure up to $10 billion of American Equity fixed index annuity liabilities. Brookfield will also get a board seat on American Equity’s board.
In addition, American Equity’s (AEL) board also authorized a $500 million share repurchase program, which will be funded partly with the Brookfield equity investment and the life insurance company’s cash.
American Equity’s CEO Anant Bhalla said “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.” (See AEL stock analysis on TipRanks).
On Oct. 9, B. Riley Financial analyst Randy Binner raised the price target on AEL to $30 (7.1% downside potential) from $23 and maintained a Hold rating. The analyst expects price firming to be a “significant positive catalyst” for the casualty space.
Currently, the Street is sidelined on the stock. The Hold analyst consensus is based on 5 Holds and 1 Buy. The average price target of $31.20 implies downside potential of about 3.41% to current levels. That’s after shares have already gained by about 7.9% year-to-date.
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