$11 billion is the staggering cost of the latest merger for finance giants Apollo Global Management and Athene Holding.
Founded in 1990, Apollo - one of the largest alternative investment managers - operates through its Private Equity, Credit and Real Asset divisions. Their total assets under management have grown nearly sevenfold in the past ten years to $455 billion, with their credit division boasting more than $320 billion in AUM. During the financial crisis in 2009, Apollo founded Athene, a life insurer buying cheap insurance policies and moving customers’ retirement savings into unconventional credit investments.
Despite sharing what Athene Chairman and CEO Jim Belardi describes as a “longstanding mutually beneficial relationship”, the two companies remained separate. Athene grew quickly after its founding, in turn helping to boost Apollo’s growth which saw its credit business grow more than 10-fold to $201 billion in assets, mostly related to its close relationship with Athene. However, insurance experts worried that the relationship between the businesses was threatening the interests of investors in Athene.
Apollo managed Athene’s balance sheets, receiving hundreds of millions of dollars more than their standard fee in return. The deal is said to have added $4 billion to the value of Apollo, allowing it to prosper whilst Athene traded below its IPO price. Unsurprisingly, this sparked legal action from two Athene shareholders in 2019 and brought attention to the conflicting interests of the relationship. Athene shareholders complained that Apollo had too much sway over the firm and a Financial Times investigation exposed the failure of the governance system introduced to prevent such conflicts. Even Apollo insiders concluded that Athene could’ve saved millions of dollars a year if it replaced Apollo with an independent asset manager. To mitigate these complaints, Athene created a conflicts committee to manage the relationship, but some of the committee’s members were still closely connected to Apollo.
After much contention and calls for change, the firms are eliminating the distinction between themselves, merging into a financial conglomerate with a market capitalisation worth almost $30 billion. The merger will eliminate the existing portfolio management deal and streamline capital transfer between the pair.
The outgoing CEO of Apollo, Leon Black, remarked that the merger is about “alignment, [and] turbo charging growth”. Incoming CEO Marc Rowan shared the same outlook about the deal, adding that the strategic move “will include rapidly scaling our capability to originate attractive risk and reward assets…giving us a bigger balance sheet to invest alongside clients in our various fund products”. This makes it clear that the move was engineered to ensure that Apollo will now receive the capital from Athene’s insurance clients, increasing the latter’s capabilities in the pension risk transfer and annuities business.
The share prices of both Athene and Apollo jumped after the deal's announcement by 15.6% and 5.4%, respectively. With the value of Athene placed at $11 billion, the merger will involve an all-stock transaction of each outstanding Athene Class A being exchanged for 1.149 shares in Apollo, displaying a 16.5% premium. Shareholders will reportedly receive a $1.60 dividend with promising prospects of increasing growth and equal voting rights for each share. This would take the company to a total market value of $29 billion, potentially awarding the combined entity a spot in the S&P 500. Additionally, due to the low-risk execution and the cooperative Boards on both sides, this merger has been positively received by shareholders from both companies and credit rating agencies.
The deal is expected to close in January 2022 and is just another stop on the road towards a bright future for Athene Holding. After reports that a pension deal has been signed with GE, the firm is set to retain a prime spot in the annuity market, particularly as experts predict that the merger will attract more deals for them. Despite a 9% overall drop in dealings, their annuity transactions increased by 16%, highlighting the true extent of their success and potential.
Similarly, Apollo Global Management seems to be a great company to invest in currently. They are expected to earn $2.72 per share by the end of this year, which would be a staggering increase of 34.7% in one year. Financial analysts all seem to be very positive about Apollo's future, which is predicted to have a 6.6% increase in the share value in the following three months.
Combined, Apollo and Athene are a powerhouse. With Athene focusing on retirement savings and Apollo leading the way in investment management, they cover a large amount of the financial sector, and even a global pandemic cannot dampen the very sunny forecasts for these financial giants.
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