Apollo reabsorbs Athens in a full-equity transaction that values ​​the company at $ 11 billion

It also represents the most recent step in Apollo’s attempt to improve its governance following the revelations of the ties between co-founder and chief executive Leon Black and disgraced financier Jeffrey Epstein.

The change comes as Apollo co-founder Marc Rowan, the architect of the company’s insurance strategy, is preparing to take on the role of CEO. Black said in January that he would step down after a board review of his ties to Epstein, who killed himself in his Manhattan cell in 2019 after being indicted on federal sex trafficking charges involving underage girls.

The investment firm recently announced a series of governance changes, including the appointment of more independent directors. Apollo said on Monday that its board voted to abandon the company’s double-class ownership structure and adopt a “one share, one vote” regime – a move it said it was considering and hoped will pave the way for its inclusion in the S&P 500 index.

Each outstanding Class A share of Athene will be exchanged for 1,149 Apollo shares, reflecting a premium of approximately 16.5% over Athene’s closing price on Friday.

The all-share deal will result in Apollo shareholders owning approximately 76% of the combined company, with Athene investors owning the remainder.

The deal would more than double Apollo’s reported profits in 2020, the companies said. Shareholders will receive a fixed annual dividend of $ 1.60 per share.

Apollo hopes that efforts will help boost its stock price, which has fallen amid investor concerns over whether Black’s ties to Epstein would prevent image-conscious pension funds and other institutions from investing more money in their funds. . Apollo currently manages more than $ 450 billion and has set a goal in 2019 to raise that figure to $ 600 billion over five years.

Apollo’s shares fell nearly 4% on Monday morning, while Athene’s shares rose about 8%.

Investors have long been concerned about Apollo’s dependence on Athene as its largest asset management client, representing about 40% of the assets under management and generating about 30% of its fee-related revenue.

For Athene, the combination is the most recent evolution since it was founded in 2009 with the support of Apollo. The insurance company has become one of the largest fixed annuity holders in the country, a retirement savings product preferred by risk-averse and, in many cases, older Americans.

Athene was built under the command of former American International Group Inc. executive James Belardi, who, financed by Apollo, acquired fixed-income business blocks at a low price after the financial crisis. The investment firm was hired to choose investments that would guarantee Athene’s obligations to pay consumers.

Mr. Belardi quickly made newcomer Athene a major driver of consolidation across the United States life insurance industry, acquiring tens of billions of dollars in assets. Last year, it had $ 150 billion in net assets invested.

It went public in 2016 and had a market capitalization of just over $ 10 billion before the merger plans were announced.

In Athene’s early years, Apollo owned 17%, but controlled 45% of the votes in a deal that prompted some potential insurer shareholders to back down due to concerns about conflicts of interest. Apollo in 2019 increased its stake in Athene to 35% and eliminated the insurer’s overvoting actions. Athene also obtained a 7% stake in Apollo.

In a conference call to discuss the deal, Belardi, now president and CEO of Athene, said the insurer had a strong year of 2020, despite the coronavirus pandemic. Still, he said, “despite all our success and the countless competitive advantages we have, it is clear and quite unfortunate” that some shareholders are afraid to buy the shares. The merger is the “logical next step” for Athene to address these concerns and become stronger and more credible, he said.

Athene’s focus on fixed annuities – which pay interest to buyers over a period of years – matches Apollo’s experience in credit investment. Insurers profit by earning more from investments that guarantee products than from what they pay customers. State insurance department guidelines direct insurers to investment grade bonds, but companies have some leeway to build their portfolios.

In the past decade, many insurers have been discharging their annuity business at reduced prices because ultra-low interest rates in the United States since the global financial crisis have made it harder to make money.

Athena has been at the forefront in collecting leftovers. Working with Apollo as its asset manager, the concept was that it could make more money by investing customers’ money than traditional insurers, thanks to the greater access it enjoys to so-called higher-yield alternative investments.

Athene has also become a prominent insurer in a growing business called pension risk transfer, in which employers with outdated pension plans strike deals with insurers to take responsibility for the pensioners’ monthly benefits.

—Dave Sebastian contributed to this article.

Write to Miriam Gottfried at [email protected] and Leslie Scism at [email protected]