Head of Research and Global Chief Strategist, Steno Research

Andreas Steno

Head of Research and Global Chief Strategist

Macro and Geopolitical Research House

Steno Research

Steno Research is a new macro and geopolitical research house. We are based out of Copenhagen, Denmark, but have an international team and a strong network of sources and partners around the world. The team is lead by Andreas Steno, previous global head of strategy at Nordea Bank, and Mikkel Rosenvold, former chief consultant in the Danish Ministry of Finance.

Macroeconomics

<ul><li>Welcome back to our weekly positioning watch, where we as always provide you with our latest findings on sentiment, positioning, and everything in between.</li><li>Conclusions in short:Equities: Tech is now slightly overbought, while Utilities remain both oversold and undervalued.</li><li>Russell 2000 is the cheapest and most oversold index.</li></ul>

Welcome back to our weekly positioning watch, where we as always provide you with our latest findings on sentiment, positioning, and everything in between.Conclusions in short:Equities: Tech is now slightly overbought, while Utilities remain both oversold and undervalued.Russell 2000 is the cheapest and most oversold index.

Positioning Watch – Markets betting on lower rates and higher oil prices

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/apollo-global-management-inc" target="_blank" data-smartkarma-citation="entities:28770:1" rel="noopener">Apollo Global Management Inc (APO US)</a> has agreed to acquire <a href="https://www.smartkarma.com/entities/athene-holding-ltd" target="_blank" data-smartkarma-citation="entities:26507:1" rel="noopener">Athene Holding (ATH US)</a>, the life insurance company it created at the height of the financial crisis, in an all-share deal worth $11 bn.
Consideration. 1.149 APO US x 1 ATH US.
<ul>
<li>
The implied value is $56.94 per share for Athene (based on 5 March closing prices and using 191.6 mn of Athene Class A shares), for a total consideration to Athene shareholders of $11,018.6 mn.
</li>
<li>
For an implied transaction value/assets of 5.45%, and 6.9x Fwd P/E.
</li>
<li>16.5% premium to the closing price on the day prior to the deal announcement.</li>
</ul>
Apollo created Athene because it saw the insurance business as an opportunity to put clients' capital to work. The idea was to buy corporate debt and other stressed credit assets at discounted prices. Athene quickly became Apollo's largest client, paying huge fees to the private equity firm, which was in turn managing most of its balance sheet. To date, Apollo manages 100% of Athene's assets.
An FT investigation found that Apollo executives themselves had concluded that they were charging hundreds of millions of dollars more than an independent asset manager would charge for the same services.
In spite of opportunities arising from the restructuring of the life &amp; retirement, Athene's stock market valuation has declined from 10.0x forward P/E in March 2018 to an average of 5.1x over the last twelve months.
The merged company will scale asset and liability origination, broaden distribution channels and act as a leading global solutions provider (investment returns and retirement income). There is low execution risk on the back of their complementary businesses and management teams.
<div>
The rationale for the deal is to take advantage of Apollo's returns for Athene's insurance and asset management clients. Apollo's shareholders would benefit from Athene, which has become its largest client and a significant portion of Apollo's assets under management (c. 40%) and fee revenues (c. 30%). The merged company will have a simpler corporate structure, greater float and share liquidity and may qualify for index eligibility (S&amp;P 500).
The deal is highly accretive for Apollo's shareholders (Apollo is consolidating 100% of Athene’s earnings for 73% increase in ownership) and pro forma, more than doubles its 2021e net income (using Capital IQ consensus). On the other hand, Apollo will reabsorb a business trading at a lower multiple (6.0x Fwd P/E vs. 17x for Apollo) and that operates in a regulated capital intensive insurance industry.
</div>
<div>
6.0x P/E multiple (comparables) applied to Capital IQ consensus EPS, plus $7 (50% of deployable excess capital per share), gives a TP of $56.68. On this basis, the implied valuation of Athene is fair, considering rising interest rates.
<ul>
<li>
Valuation is roughly similar to when interest rates rose above 3% in 2018 (see chart: ATH Fwd P/E vs. 10-year US Treasury Yields).
</li>
<li>
It also almost equals adjusted BV per share less AOCI (accumulated other comprehensive income) and other adjustments, i.e. $56.95.
</li>
</ul>
</div>
<div>
The current implied premium of Athene is 5.3%. I recommend setting up the spread in the usual way.
</div>

Apollo Global Management Inc (APO US) has agreed to acquire Athene Holding (ATH US), the life insurance company it created at the height of the financial crisis, in an all-share deal worth $11 bn.
Consideration. 1.149 APO US x 1 ATH US.


The implied value is $56.94 per share for Athene (based on 5 March closing prices and using 191.6 mn of Athene Class A shares), for a total consideration to Athene shareholders of $11,018.6 mn.


For an implied transaction value/assets of 5.45%, and 6.9x Fwd P/E.

16.5% premium to the closing price on the day prior to the deal announcement.

Apollo created Athene because it saw the insurance business as an opportunity to put clients' capital to work. The idea was to buy corporate debt and other stressed credit assets at discounted prices. Athene quickly became Apollo's largest client, paying huge fees to the private equity firm, which was in turn managing most of its balance sheet. To date, Apollo manages 100% of Athene's assets.
An FT investigation found that Apollo executives themselves had concluded that they were charging hundreds of millions of dollars more than an independent asset manager would charge for the same services.
In spite of opportunities arising from the restructuring of the life &amp; retirement, Athene's stock market valuation has declined from 10.0x forward P/E in March 2018 to an average of 5.1x over the last twelve months.
The merged company will scale asset and liability origination, broaden distribution channels and act as a leading global solutions provider (investment returns and retirement income). There is low execution risk on the back of their complementary businesses and management teams.

The rationale for the deal is to take advantage of Apollo's returns for Athene's insurance and asset management clients. Apollo's shareholders would benefit from Athene, which has become its largest client and a significant portion of Apollo's assets under management (c. 40%) and fee revenues (c. 30%). The merged company will have a simpler corporate structure, greater float and share liquidity and may qualify for index eligibility (S&amp;P 500).
The deal is highly accretive for Apollo's shareholders (Apollo is consolidating 100% of Athene’s earnings for 73% increase in ownership) and pro forma, more than doubles its 2021e net income (using Capital IQ consensus). On the other hand, Apollo will reabsorb a business trading at a lower multiple (6.0x Fwd P/E vs. 17x for Apollo) and that operates in a regulated capital intensive insurance industry.


6.0x P/E multiple (comparables) applied to Capital IQ consensus EPS, plus $7 (50% of deployable excess capital per share), gives a TP of $56.68. On this basis, the implied valuation of Athene is fair, considering rising interest rates.


Valuation is roughly similar to when interest rates rose above 3% in 2018 (see chart: ATH Fwd P/E vs. 10-year US Treasury Yields).


It also almost equals adjusted BV per share less AOCI (accumulated other comprehensive income) and other adjustments, i.e. $56.95.




The current implied premium of Athene is 5.3%. I recommend setting up the spread in the usual way.


Bermuda

Athene Holding Ltd. operates as an insurance holding company. The Company, through its subsidiaries, issues, reinsures, and acquires retirement savings products, including fixed annuities and funding agreements. Athene Holding conducts business worldwide.

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Athene Holding (ATH US)

Positioning Watch – Markets betting on lower rates and higher oil prices

Welcome back to our weekly positioning watch, where we as always provide you with our latest findings on sentiment, positioning, and everything in...

Steno Research

Apollo Integrates Athene

Implied valuation of Athene (deal announcement) was fair, considering rising interest rates. Low deal failure risk. Current implied premium of...

Jesus Rodriguez Aguilar

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