Apollo again absorbs Athens in an all-stock deal that values ​​a company at $ 11 billion

It also represents the latest step in Apollo’s bid to improve his governance in the wake of revelations of ties between co-founder and Chief Executive Leon Black and disgraced financier Jeffrey Epstein.

The move comes when Apollo co-founder Marc Rowan, the architect of the company’s insurance strategy, prepares to take on the role of CEO. Mr. Black said in January that he would step down in the wake of a board review of his ties to Epstein, who committed suicide in his Manhattan prison cell in 2019 after being charged with allegations of federal sex trafficking involving underage girls.

The investment firm has recently announced a number of board changes, including the appointment of more independent directors. Apollo said on Monday the board voted to leave the company’s two-class stock structure and adopt a ‘one share, one vote’ regime – a move it had considered and expects to pave the way. for its recording. in the S&P 500 index.

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

The all-stock deal will result in Apollo shareholders owning about 76% of the combined company, with Athens investors owning the rest.

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

Apollo hopes the efforts will help bolster the stock price, which has dwindled amid investors’ concerns about whether Mr. Black’s Epstein ties would prevent image-conscious retirement funds and other institutions from putting more money in their funds. to invest. Apollo currently manages more than $ 450 billion and has set a target of raising that to $ 600 billion within five years.

Shares of Apollo fell nearly 4% Monday morning, while Athens was up about 8%.

Investors have long been concerned about Apollo’s reliance on Athens as its largest asset management client, which represents approximately 40% of assets under management and generates approximately 30% of fee-related income.

For Athens, the combination is the latest evolution since it was founded in 2009 with the support of Apollo. The insurer has become one of the largest holders of fixed annuities in the country, a retirement savings product favored by risk-averse and, in many cases, older Americans.

Athens was built under the direction of James Belardi, former president of American International Group Inc., which, funded by Apollo, cheaply acquired fixed-annuity business blocks in the aftermath of the financial crisis. The investment company was contracted to select investments to support Athens’ payment obligations to consumers.

Mr. Belardi quickly turned the upstart Athens into a major driver of consolidation in the US 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 cap of just over $ 10 billion before the merger plans were announced.

In the early years of Athens, Apollo owned 17% but controlled 45% of the vote in a settlement that led to some potential shareholders turning away from the insurer over concerns about conflicts of interest. Apollo increased its stake in Athens to 35% in 2019 and abolished the insurance company’s supervisory shares. Athens also took a 7% stake in Apollo.

During a conference call to discuss the deal, Mr. Belardi, now the chairman and CEO of Athens, said the insurer had a strong 2020 despite the coronavirus pandemic. Still, he said, “despite all our success and the numerous competitive advantages we have, it is clear and quite a shame” that some shareholders were wary of buying the stock. The merger is the “logical next step” for Athens to address those concerns and become stronger and more creditworthy, he said.

Athens’s focus on fixed annuities – through which buyers pay interest over a period of years – ties in well with Apollo’s expertise in credit investment. Insurers benefit by earning more from investments that support the products than what they ultimately pay out to their customers. State insurance guidelines direct insurers to investment-grade securities, but companies have some leeway in building their portfolios.

Over the past decade, many insurers have offloaded their annuities at discounted prices, as ultra-low interest rates in the US since the global financial crisis have made it more difficult to make money.

Athens has been at the forefront of picking up the leftovers. Working with Apollo as an asset manager, the concept was that it could make more money by investing clients’ money than traditional insurers, thanks to greater access to so-called alternative investments with higher returns.

Athens has also become a prominent insurer in a growing company called retirement risk transfer, in which employers with old-fashioned retirement plans have agreements with insurers to take responsibility for retirees’ monthly benefits.

—Dave Sebastian contributed to this article.

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