European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

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.


Athene Holding

Apollo Integrates Athene