Brookfield/AEL: from awks to talks for policy-writing machine

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There is life for a chief executive after investor call awkwardness. And it can be lucrative. Anant Bhalla, boss of American Equity Investment Life, was presenting results last November when Wall Street analysts told him a director representing big investor Brookfield had resigned abruptly.

The Canadian investment manager was irritated by AEL’s capital allocation. Bhalla was unaware of the resignation mentioned in a securities filing published as the call was starting.

On Wednesday, Brookfield overcame its irritation. It agreed to acquire Iowa-based AEL for $4.3bn in total. That represents a 35 per cent premium above where AEL was trading.

Brookfield may dislike the part of AEL’s balance sheet which delineates its investments. But it loves the section that includes $59bn of retirement annuities. It has its own ideas on deploying these.

Since joining AEL in 2020, Bhalla has aggressively deployed a portion of customer premiums into “alternative” investments. He signed agreements with multiple private capital managers in a quest for excess profits beyond fusty public bonds. His aim was to juice returns for AEL’s public shareholders.

This strategy has been developing. But investors still coveted AEL primarily for its policy-writing machine. Brookfield bought a fifth of the equity, starting in 2020, to help Bhalla fend off a hostile bid. Meanwhile it built up its own formidable insurance vehicle. 

Last winter, AEL rejected a $45-per-share offer backed by Elliott Management. Holding out for Brookfield’s price — $55 per share — now looks wise.

A full $39 per share of the buyout price is in cash. Brookfield is paying the rest in the stock of its listed asset manager. The Canadian group bought its prior stake for roughly $37 per share. Integrating AEL with Brookfield’s insurance operations should generate cost savings. All those elements mitigate the high takeout price.

Even so, it is Brookfield rather than Bhalla who may now be feeling slightly awkward.