US private equity shark Apollo Management and its offshoot Athene Life Re have raided annuity group Challenger Financial Group, grabbing an 18% shareholding but don’t seem to have any plans for a full bid.
Of that stake, 15% will be held by the two US companies (in reality by Apollo), while the remaining 3% will be held separately subject to approval from APRA, the key financial regulator.
(Investment in a financial firm of 15% or more needs approval from APRA. Foreign buyers will need FIRB approval as well)
That saw shares in Challenger leap 14% to $6.22 at the opening on Wednesday before they ended up 10% at.
The shares then eased to be up 8.9% at $5.96 – where they were back in April.
The shares sank as punters realised the chances of a counter offer or takeover bid from the American duo were remote.
Apollo and Athene (Apollo is in the process of taking over Athene in a $US11 billion deal), snapped up most of its stake from Sydney investment group, Caledonia Private Investments.
The two US owned groups have been accumulating the stake on market since May, at prices ranging from $4.96 to $5.55.
With the on-market purchases and the purchase from Caledonia, the stake is 18.02% or 121.858 million shares at a total cost of $720 million.
Athene Chief Executive Jim Belardi said the investment was an opportunity to enter “geography we have been studying, given the current economic conditions and compelling demographic fundamentals.”
In a statement Athene (and Apollo) talked about a “minority stake” and how they saw “attractive long-term opportunities in partnering with and supporting Challenger’s continued growth as minority shareholders.”
“Athene and Challenger share the same mission – to provide customers with financial security for retirement. Challenger is the preeminent platform in Australia for both annuities and investment management, with A$21bn of life investment assets and A$104bn of total assets under management as of March 31, 2021.
“Athene and Apollo believe that Challenger is well-positioned to continue serving Australia’s sizeable and growing retirement market,” the two said.
In a statement to the ASX, Challenger CEO, Richard Howes welcomed the raid, saying: “Today’s announcement by Athene is a strong endorsement of Challenger’s market position and long-term growth prospects from a leading international retirement services provider.
“We look forward to working with Athene and Apollo as we continue to pursue our shared purpose of providing customers financial security for a better retirement,” he said.
Athene is one of America’s major issuers of annuities (which are a savings product) and was originally started by Apollo.
Apollo bid $US11 billion in an all-share deal earlier this year with the aim of bringing in-house an annuities provider that is 27% owned.
Athene is Apollo’s partner insurance company and had total assets worth $US202.8 billion at the end of 2020, with operations in the US, Bermuda, and Canada.
Apollo has been getting paid lucrative fees by Athene for more than a decade, providing asset allocation services and directly managing a portion of Athene’s assets across its investment platform, primarily in its ever-expanding credit business.
Athene’s shares had underperformed the US insurance sector following its stock market debut in 2016, prompting a bid from Apollo in March.
Apollo said in March in making its offer that it estimated the tax-free combination could result in its earnings in 2021 more than doubling year-on-year.
“We will have total alignment to optimize our strategy and allocate capital efficiently,” said Marc Rowan, Apollo’s incoming chief executive, who helped set up Athene in 2009.
Rowan also co-founded Apollo 31 years ago.
Existing Apollo shareholders will own about 76% of the combined company, and Athene investors will own the rest. The deal is expected to be completed in January 2022.
That means Apollo will be the final owner of the 18% stake in Challenger (assuming that APRA approves the transaction).
This is the third major deal involving Apollo in Australia this year. It has involved itself in the battle for Crown resorts by offering the Crown board a financing deal (including a big loan) to buy James Packer’s 37% in the casino group and it has offered $4 billion for the wagering assets of Tabcorp.
