Brookfield offers to buy insurer American Equity for $4.3bn

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Brookfield has offered to acquire American Equity Investment Life for $4.3bn, making it the latest private capital manager looking to expand in credit investing by adding retirement annuity and life insurance assets.

The AEL board has lifted a “standstill” provision that allows Brookfield to purchase more company shares than the 20 per cent stake it already owns, according to a securities filing on Tuesday. According to a letter from Brookfield addressed to the AEL board of directors in the filing, a definitive deal contract could be signed by the end of this week.

AEL, based in West Des Moines, Iowa, is one of a few independent annuities operators remaining amid a wave of consolidation and has more than $70bn in total assets. Private equity groups have bought up similar businesses as they aim to expand their investable assets.

Under the terms of the proposed transaction announced on Tuesday, Brookfield’s listed insurance affiliate, Brookfield Reinsurance, would acquire AEL shares for cash and stock for $55 each, an implied premium of 35 per cent to Friday’s closing price. Almost $40 of the per-share consideration is to be in cash, with the remainder to be paid in shares of Brookfield Asset Management, a listed affiliate of Brookfield.

A deal would end a public dispute that erupted last year, when a Brookfield executive resigned from the AEL board and criticised the company’s chief executive, Anant Bhalla, for what he said was a “fundamental change in the strategic direction of AEL”.

The insurer had entered into a multibillion-dollar reinsurance agreement with start-up private capital firm, 26North, founded by the longtime Apollo executive Josh Harris. AEL had also bought a $250mn stake in 26North. Brookfield demanded AEL explain the circumstances of the 26North transactions which it suggested was ill-conceived by Bhalla.

AEL fired back at Brookfield, calling the Canada-based group a “direct competitor” that could not remain on the board because in 2022 it acquired a Texas-based life insurer, American National, for $5bn.

AEL had long been coveted by investment managers as one of the last large “fixed-indexed” annuities merchants whose customer premiums could be invested in complex corporate loans and other fixed-income assets besides traditional bonds. In 2020, AEL had repelled an unsolicited joint bid from Apollo’s Athene unit, which had partnered with MassMutual.

At that time, Brookfield purchased a stake in AEL and entered into a reinsurance pact, which gave the asset manager responsibility for managing billions in AEL customer liabilities.

Bhalla took the helm of AEL in early 2020 and had been implementing a strategy he called “AEL 2.0” in which the company partnered with multiple alternative asset managers to more aggressively invest the funds of customers.

Amid the corporate governance turmoil late last year, AEL faced another unsolicited bid from Prosperity Life, a life insurer owned by Elliott Management. Prosperity dropped that $4bn offer early in 2023 after AEL’s board rebuffed it.

Brookfield last year listed a minority stake in BAM to unlock its public market value and create a currency to make purchases as the asset management industry consolidates.