The investment management company, Brookfield Corp’s (NYSE:BN) reinsurance arm, Brookfield Reinsurance (NYSE:BNRE) is on the verge of closing its deal to acquire long-time takeover candidate, American Equity Investment Life (NYSE:AEL). The fixed index annuity and retirement solutions provider, AEL, is expected to announce the deal as early as Monday, July 3.
Post the news yesterday in after-market trading, AEL’s stock price jumped 9.5% after collecting 11% gains during the day. However, BN was down 2.1% and BNRE lost 1.9% in after-hours.
Current and Prior Acquisition Offers
Canadian investment giant Brookfield’s reinsurance arm is all set to take over insurer American Equity Life. As suggested by the AEL board, Brookfield has proposed a cash-and-stock offer for the company.
Through a 20% ownership stake in AEL, Brookfield is already its largest shareholder. In 2020, it signed a multiyear agreement with AEL to re-insure as much as $10 billion in existing and future annuity liabilities.
Meanwhile, American Equity has in the past rejected several offers from potential buyers, including a December 2022 unsolicited acquisition offer from Elliott Investment Management-backed Prosperity Life Insurance. The proposal of $45/share was withdrawn by Prosperity in February 2023.
While the exact terms of the current deal remain unknown, a Bloomberg report indicates that Brookfield’s offer is higher than the rejected Prosperity bid. It values AEL at a premium price from current stock price levels.
In 2020, American Equity had also rejected takeover bids from Massachusetts Mutual Life Insurance Co. and Apollo Global Management Inc.’s Athene Holding.
Growing Insurance Business, Strong Outlook
For Q1, Brookfield reported distributable operating earnings of $145 million for its insurance solution business, which is a significant increase from $13 million in the year-ago quarter. The company ended its latest quarter, Q1 with $113 billion of capital available to utilize for new investments. This includes $33 billion of cash, financial assets, and undrawn credit lines.
Moreover, Brookfield had announced the acquisition of U.S.-based specialty P&C business, Argo Group, in February 2023, which would add $4 billion of assets to the company. The transaction is expected to close in 2H23. The company’s insurance solutions business is estimated to increase its annualized earnings to $800 million by the end of 2023.
Is Brookfield a Buy or Sell?
Of the six Wall Street Analysts covering Brookfield (BN) stock, five assign a Buy rating while the remaining one rates it a Hold, taking the average consensus rating to Strong Buy. The analysts’ average price target stands at $44 implying a 39.9% upside potential from current levels.
Yesterday, Credit Suisse Analyst Andrew Kuske reaffirmed his Buy rating on BN stock with a price target of $42 (vs. $41 earlier) indicating a 33.4% upside potential from current levels.
