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American Equity Accepts Brookfield’s $4.3 Billion Takeover Offer – Merger Arbitrage Mondays

  • July 10, 2023

Key Highlights

  • American Equity Investment Life Holding Company (AEL) to be acquired by Brookfield Reinsurance (BNRE) for $4.3 billion in a cash-plus stock deal.
  • JetBlue Airways (JBLU) chooses to end its legal fight to preserve its regional alliance with American Airlines Group (AAL) in order to obtain regulatory support for its acquisition of Spirit Airlines (SAVE).
  • EU antitrust regulators initiate a comprehensive investigation into Amazon’s (AMZN) planned acquisition of iRobot (IRBT), expressing concerns that the deal could impede competition within the robot vacuum cleaner market.

New Deal: American Equity Investment Life Holding Company (AEL)

On July 5, 2023, American Equity Investment Life Holding Co. accepted a $4.3 billion cash and stock takeover bid from an arm of Canadian investment giant Brookfield.

Incorporated in 1995 and based in West Des Moines, Iowa, AEL, along with its wholly-owned operating subsidiaries, specializes in selling fixed index and fixed rate annuities. The annuities industry has been benefiting from higher interest rates, which is boosting the profitability of newly issued policies. Before receiving the current offer, the stock experienced some volatility. Prosperity Group initially made an offer in December 2022, but withdrew it after AEL did not entertain their proposal.

Following a strategic partnership that involved a reinsurance transaction, Brookfield made its initial investment in AEL in 2020. In the subsequent year, Brookfield officially established its reinsurance entity, Brookfield Reinsurance, and in October 2021, announced the successful completion of the previously mentioned transaction.

In January 2022, it was disclosed that Brookfield Re had increased its equity stake in AEL.

We added AEL as a potential deal in the works on June 26, 2023, when Bloomberg reported that an arm of the Canadian investment giant Brookfield is nearing a deal to acquire insurance firm American Equity Investment Life Holding (AEL). The deal was finalized on July 5, 2023.

Under the terms of the agreement, every AEL shareholder will receive $55.00 per AEL share, comprising of $38.85 in cash and 0.49707 of a Brookfield Asset Management (BAM) class A limited voting share. The value of the BAM shares on June 23rd, 2023, was equivalent to $16.15.

Anant Bhalla, the CEO and President of AEL, expressed his thoughts on the transaction, stating: “We are pleased to have reached this agreement with Brookfield Reinsurance and believe this transaction provides an excellent outcome for all AEL shareholders, policyholders and other stakeholders. The significant premium that will be delivered to shareholders as a result of this transaction is a testament to our strong performance and AEL’s successful transformation under the AEL 2.0 strategy into an asset light insurer and asset manager.

BNRE’s offer surpasses Prosperity’s by more than 20%. While it can be argued that market conditions have improved since the previous offer, there have also been additional pressures on the financial sector. BNRE already holds a 20% stake in AEL, which grants them insight into the perspectives of AEL board members. This existing shareholder position makes it more challenging for AEL to dismiss BNRE compared to Prosperity.

The current spread on the deal is 3.46%.


Deal Update: Spirit Airlines (SAVE)

On March 7, 2023, The U.S. Justice Department initiated legal action to block JetBlue Airways (JBLU) from acquiring Spirit Airlines (SAVE), arguing that the proposed merger would result in increased fares and reduced seat availability, negatively impacting millions of consumers across numerous routes. Attorneys general from California, Maryland, New Jersey, and North Carolina also joined an antitrust lawsuit aiming to block the merger.

In an attempt to salvage its proposed purchase of Spirit Airlines, JetBlue announced its decision to terminate its partnership with American Airlines (AAL) in the Northeast region following an unsuccessful legal battle regarding the agreement.

Although the partnership with American Airlines facilitated JetBlue’s expansion in a specific region, acquiring Spirit Airlines will enable JetBlue to experience rapid growth and capture nearly 10% of the national air-travel market. This would bring JetBlue closer in size to major carriers like United, Delta, Southwest, and American.

Last fall, the Justice Department won a trial held in Boston concerning the JetBlue-American partnership. In May, U.S. District Judge Leo Sorokin ruled that the airlines must terminate their Northeast Alliance (NEA) established in 2021 as it infringes upon U.S. antitrust laws.

The Justice Department’s lawsuit against the JetBlue-Spirit merger is set for trial in October. The government contends that eliminating Spirit, the largest discount airline in the country, would have adverse consequences for consumers.


Merger Arbitrage activity decreased last week with two new deals announced and two deals closing.

You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) which automatically updates itself during market hours.

Merger Arbitrage

Deal Statistics:

Total Number of Deals Closed in 202391
Total Number of Deals Not Completed in 20236
Total Number of Pending Deals
Cash Deals39
Stock Deals17
Stock & Cash Deals5
Special Conditions6
Total Number of Pending Deals67
Aggregate Deal Consideration$704.32 billion

New Merger Arbitrage Deals:

  1. The acquisition of Great Ajax Corp. (AJX) by Ellington Financial (EFC) in an all stock deal. Under the terms of the agreement, Great Ajax common stock will be converted into 0.5308 shares of Ellington Financial common stock.
  2. The acquisition of American Equity Investment Life Holding Company (AEL) by Brookfield Reinsurance (BNRE) for $4.3 billion in a cash plus stock deal. Under the terms of the agreement, each AEL shareholder will receive $55.00 per AEL share, consisting of $38.85 in cash and 0.49707 of a Brookfield Asset Management Ltd. (BAM) class A limited voting share. We added AEL as a potential deal to the Deals in the Works section on June 26, 2023, and the price after the news of the potential deal came out was $45.10.

Deal Updates:

  1. CIRCOR International (CIR) and KKR & Co (KKRfiled their notification and report forms with the FTC and DOJ on June 20, 2023.
  2. On July 6, 2023, Bloomberg reported that JetBlue Airways (JBLU) is ending a legal fight to keep its regional alliance with American Airlines Group (AAL) in an attempt to win regulatory support for its acquisition of Spirit Airlines (SAVE).
  3. On July 6, 2023, Triton International Limited (TRTN) announced that the special meeting of stockholders will be on August 24, 2023.

Approvals:

  1. On July 3, 2023, the Competition Tribunal of South Africa confirmed that it has unconditionally approved Microsoft’s (MSFT) proposed acquisition of Activision Blizzard (ATVI).
  2. July 5, 2023: Franchise Group (FRG) and members of the senior management team of Franchise Group led by Brian Kahn made the required filings under the HSR Act with the FTC and the DOJ on May 24, 2023, and the initial 30-day waiting period expired on June 23, 2023.
  3. July 5, 2023: PDC Energy (PDCE) and Chevron (CVX) announced that the waiting period under the HSR Act with respect to the Merger expired on July 5, 2023.
  4. On July 6, 2023, First Bank (FRBA) and Malvern Bancorp (MLVF) announced receipt of regulatory approvals from the Federal Deposit Insurance Corporation, the New Jersey Department of Banking and Insurance, and the Pennsylvania Department of Banking and Securities, as well as non-objection from the Board of Governors of the Federal Reserve System, to complete the previously announced acquisition under which First Bank will acquire Malvern Bancorp. The Merger is anticipated to close by mid-July 2023.
  5. On July 6, 2023, IVERIC bio (ISEE) announced that it has received shareholder approval to be acquired by Astellas Pharma Inc.
  6. On July 7, 2023, GasLog Partners (GLOP) announced that its unitholders approved the previously announced merger deal, where parent GasLog Ltd. will acquire all outstanding common units it does not already own for $8.65 per unit.

Hurdles:

  1. July 6, 2023: According to Reuters, EU antitrust regulators opened a full-scale investigation into Amazon’s (AMZN) $1.7 billion proposed acquisition of iRobot (IRBT), saying the deal may restrict competition in the market for robot vacuum cleaners.

Closed Deals:

  1. The acquisition of U.S. Xpress Enterprises (USX) by Knight-Swift Transportation Holdings (KNX) on July 3, 2023. It took 104 days for this deal to be completed.
  2. The acquisition of Diversey Holdings (DSEY) by Solenis on July 5, 2023. It took 119 days for this deal to be completed.

Weekly Spread Changes:

The table below shows weekly spread changes between June 30, 2023, and July 7, 2023.

SymbolQuoteAcquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
SIMO63.5MaxLinear, Inc. (MXL)30.6466.03%47.21%18.82%Cash Plus Stock
TSEM35.57Intel Corporation (INTC)31.8549.00%41.26%7.74%All Cash
SAL23.21NBT Bancorp Inc. (NBTB)32.012.75%0.16%2.59%All Stock
ATVI82.43Microsoft Corporation (MSFT)337.2215.25%12.69%2.56%All Cash
FORG20.18Thoma Bravo (N/A)15.21%13.19%2.02%All Cash
IRBT46.37Amazon (AMZN)129.7831.55%34.81%-3.26%All Cash
PTRS6.29LINKBANCORP, Inc. (LNKB)5.795.86%11.47%-5.61%All Stock
INFI0.216MEI Pharma, Inc. (MEIP)6.4455.04%62.55%-7.51%All Stock
SURF0.9398Coherus BioSciences, Inc. (CHRS)4.8517.05%26.49%-9.44%Special Conditions
SAVE18.61JetBlue Airways Corporation (JBLU)8.9366.58%80.65%-14.07%All Cash

Top 10 Merger Arbitrage Deals With The Largest Spreads:

Please do your own due diligence on deals with large spreads. Some of these large spreads might be related to regulatory issues or because of the way the deal is structured. We classify some of these deals as “special situation” deals in our merger arbitrage tool and provide additional details to help with the analysis. There may be unique situations related to special dividends, spinoffs, proration, etc. that need to be accounted for when looking at these spreads.

SymbolAnnounced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
ProfitAnnualized
Profit
SAVE07/28/2022JetBlue Airways Corporation (JBLU)$31.00$18.6106/30/202466.58%68.07%
SIMO05/05/2022MaxLinear, Inc. (MXL)$105.43$63.508/07/202366.03%831.05%
INFI02/23/2023MEI Pharma, Inc. (MEIP)$0.33$0.21609/30/202355.04%242.03%
TSEM02/15/2022Intel Corporation (INTC)$53.00$35.5708/15/202349.00%483.40%
IRBT08/05/2022Amazon (AMZN)$61.00$46.3708/05/202331.55%426.52%
BKI05/04/2022Intercontinental Exchange, Inc. (ICE)$75.66$60.2608/04/202325.55%358.72%
ACI10/14/2022The Kroger Co. (KR)$27.25$21.8903/31/202424.49%33.60%
DM05/25/2023Stratasys Ltd. (SSYS)$2.14$1.7312/31/202323.57%49.16%
SGEN03/13/2023Pfizer Inc. (PFE)$229.00$191.5101/31/202419.58%34.69%
SURF06/16/2023Coherus BioSciences, Inc. (CHRS)$1.10$0.939809/30/202317.05%74.96%

Deals In The Works

Three new potential Merger Arbitrage deals were added to the ‘Deals In The Works‘ section last week.

  1. On July 3, 2023, PolyMet Mining (PLM) announced that it received a non-binding proposal from Glencore AG to acquire all outstanding shares for cash consideration of $2.11 per share.
  2. On July 5, 2023, RVL Pharmaceuticals (RVLP), a specialty pharmaceutical company announced that, as authorized by its Board of Directors, the company has been considering certain strategic alternatives including a potential acquisition.
  3. July 7, 2023: According to Reuters, Cronos Group (CRON), the Canadian cannabis producer backed by cigarette maker Altria Group (MO), is exploring options that include a potential sale after attracting acquisition interest.

Updates

  1. According to Bloomberg, Abcam (ABCM) is attracting initial interest from US life sciences companies Danaher Corp.(DHR) and ​​Agilent Technologies (A).
  2. Stratasys (SSYS) board unanimously determines that the unsolicited proposal from 3D Systems (DDD) does not constitute a superior proposal.

SPAC Arbitrage

Potential SPAC IPO

  1. On July 3, 2023, Haymaker Acquisition Corp. 4 filed Form S-1 for a $200 million IPO.
  2. On July 7, 2023, Spark I Acquisition Corp filed Form S-1 for a $100 million IPO.

Completed

  1. On July 3, 2023, East Resources Acquisition Company (ERESannounced the completion of its business combination with Abacus Life (ABL).
  2. On July 3, 2023, GSR II Meteora Acquisition Corp. (GSRM) and Lux Vending, LLC dba Bitcoin Depot announced the successful closing of their previously announced business combination.
  3. On July 6, 2023, GoGreen Investments (GOGN) and Lifezone Metals (LZMcompleted their previously announced business combination.

Terminated

  1. On July 3, 2023, Kensington Capital Acquisition Corp. V (KCGI) and Arrival (ARVL) announced that both companies have agreed to terminate the business combination agreement.

List of all pending Merger Arbitrage deals:

Disclaimer: I have long positions in Activision Blizzard (ATVI), Spirit Airlines (SAVE) and Tower Semiconductor (TSEM). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.