In case you’ve missed it, there’s been a Hollywoodesque legal drama swirling around in the insurance world between two private equity (private equity) firms, Caldera Holdings Ltd., Apollo Global Management LLC, and one publicly traded insurance company.

Until now, the company has been unnamed, but, in my opinion, a recent court filing, and a persistent “no comment” statement, make it clear, that American Equity Life Insurance Company is the company.

The real story isn’t about Caldera and Apollo legal posturing, it’s how American Equity had no choice but to announce it was exploring a sale, even though selling wasn’t the company’s intent, and despite the unlikeliness the transaction would be completed.

American Equity reported more than a year ago that it was talking to a would-be buyer.

(Related: American Equity Says Deal Talks Have Ended)

The company said today that its deal negotiations with the other party have ended. American Equity still has not named the other party.

The History

Before we jump into the American Equity deal story, here’s a brief overview of the Apollo vs. Caldera saga. Imran Siddiqui was the star protégé of Leon Black, the billionaire founder of Apollo, a $280 billion-dollar giant investment company. Imran was instrumental in helping Apollo partner and create the insurer Athene, which nets Apollo $400 million annually. Siddiqui was to Apollo, like LeBron James was to Cleveland (the first time). Just like with LeBron, the fairytale ends with Imran leaving to become the competition — Caldera.

In short, lawsuits have been filed in New York and Bermuda, with Apollo/Athene accusing Caldera of taking their “confidential and proprietary” information and methodologies used to acquire insurance assets, and stating that Caldera had simultaneously employed an Apollo partner to sabotage its bid for the unnamed company. While on the flip side, Caldera accuses Apollo of scaring off its investors and other professional relationships.

In other words, both companies think the other isn’t playing fair and both companies want the same insurance company.

Who’s the lucky gal they’re both fighting over?

The Lucky Gal

Until now, industry experts and those “familiar with the case” have suggested that the object of the companies’ interest is American Equity.

A redacted New York County arbitration award dated April 26, 2019, left just enough for readers of the document to infer that the company involved is American Equity. The award document states, “Athene was launched on the basis of a large reinsurance transaction with [blank], and [blank] was Athene’s first client.”

Bull’s-eye! Athene becomes licensed on June 29, 2009. Athene’s marketing piece, “Athene-Building a Leading Annuity Franchise,” lists American Equity as the company’s first transaction milestone, on July 1, 2009. And Athene’s website says Athene started operations after “entering into two flow reinsurance agreements.”

Likewise, an American Equity press release states that American Equity entered into “reinsurance arrangements with Athene” for two of American Equity’s “top selling fixed index annuities and… a multi-year rate guaranteed annuity” on July 1, 2009.

Is it coincidental that American Equity entered into a reinsurance agreement identical to Athene’s first transaction and at the exact time? Unlikely, but I guess possible.

How about this: Court documents state that Athene and the unnamed insurer were in close geographical proximity. American Equity and Athene are less than four miles apart.

So, that’s not enough? Add this: LawInsider.com’s database of legal contracts includes numerous Athene reinsurance contracts. The earliest one is dated July 1, 2009, with American Equity.

And last, this: I asked Athene to confirm that American Equity was involved in its first reinsurance transaction. After a number of interactions, Athene provided the following formal comment:

“Athene is not party to this litigation and therefore will not comment on the topic.”

Apparently, I didn’t clarify that I was asking a yes-or-no question about the company’s first reinsurance transaction, not for a comment on pending litigation.

However, in Bermuda, Athene is a party to this litigation. Of course, I thought to myself, this must have been an oversight. I emailed Athene, and again asked to verify Athene’s first reinsurance transaction (you can call me the Hannity of insurance reporting).

The company provided this statement:

“We have no comment at this time.”

Wait! If American Equity wasn’t the first transaction, and Athene simply answered, “No, they weren’t,” then would I, or you, be any closer to unmasking the unnamed company? Nope. So why not answer “no” if the answer was no? There’s no consequence to an answer of no. Therefore, doesn’t Athene’s “no comment,” really mean “yes”?

How Serious Were These Talks?

Back to my original point, was American Equity really ever for sale, or did the company get caught between the crosshairs of two private equity firms’ legal dueling? In my opinion, things went down one of these three ways.

  1. American Equity chose Apollo/Athene, but the transaction isn’t completed due to the ongoing lawsuits or because the offer was disingenuous.
  2. American Equity chose Caldera, but the transaction isn’t completed due to the ongoing lawsuits.
  3. American Equity was in preliminary, basic discussions with Caldera, when the lawsuits erupted, and American Equity was forced into silence until litigation ceased.

Scenario 1: If Apollo and American Equity wanted to consummate the deal, then why haven’t they? Apollo’s was a $280 billion-dollar company with a lot of purchasing power and still is. In the last award, the arbitrator stated, “None of the actions that Siddiqui and Caldera have taken prevented Athene from acquiring [blank] if it genuinely wished to do so.”

Thus, if the offer was genuine, then it would’ve been completed; however, if Apollo/Athene made an inflated, disingenuous offer, with hopes to lower it later, then the current state of stagnation makes sense. In Caldera’s suit, Calder alleges that Athene approached the target company’s representatives “with a sham offer that Athene knew it could never make good on.” And that once Caldera was eliminated as a competitor, “Athene would be free to lower its offer… resulting in a deflated transaction price.” I believe the company approached was American Equity.

Remember, American Equity is a publicly traded company responsible to its stakeholders (note: stakeholder vs stockholder). If American Equity received a highly inflated offer, even if it was unsolicited and undesired, then wouldn’t the company have been bound to accept it? Probably.

Scenario 2: If American Equity had eyes for Caldera, and Caldera felt the same, then why isn’t the deal done?

Maybe they can’t financially do it. Caldera alleges that Leon Black called its investors “he was personally familiar with” to intimidate them into no longer investing with Caldera.

On the surface this makes sense, however, if Caldera had formalized a deal and just needed investors, then why weren’t they able to obtain investors after American Equity’s stock dropped nearly 20% from its pre-takeover price, or after it dropped nearly 30% from its 2018 highs? Wouldn’t a 20% to 30% “discount” be persuasive enough to overlook the ongoing issues with Apollo?

This brings us to the third, and I think most likely, possible scenario. Maybe a deal with either firm hasn’t happened because American Equity was never that into either Apollo or Caldera.

Neither side disputes that Apollo/Athene unsuccessfully courted American Equity in the past. Let’s assume this was due to Apollo’s management fees and the amount of control Apollo takes. (See Athene’s SEC filings for details on both of those).

So why do insurance companies transact with private equity firms? One word: Capital. What if Caldera, knowledgeable about private equity pricing strategies, approached American Equity with a deal to inject capital and allow American Equity to retain greater control?

The increased capital would help American Equity beef up rates on existing and future policies, while diminishing the need to enter into additional reinsurance agreements. Can you understand how this could be appealing?

Just like Apollo’s alleged inflated offer, if this were the case, then wouldn’t American Equity owe it to American Equity stakeholders to consider it? Again, the answer is yes.

Given the fact neither deal has been completed, and that American Equity’s stock dropped significantly enough that Caldera’s investor problems should have been absolved, I believe American Equity was never really for sale.

American Equity’s May 2018 press release said that the company was in “preliminary” discussions, and that the company wouldn’t make another comment “unless and until a definitive agreement [had] been reached.” Preliminary discussions are the equivalent of a second or third date. They’re not very formal, so why make an announcement at all?

Did you ever tell your kids, “It’s always better if I hear it from you rather than from someone else?”

American Equity’s announcement was made during the same month Apollo’s alleged tactic began and only about a month before Caldera filed its suit. Isn’t better for us to hear from American Equity that the company was in discussions, even if just preliminary discussions, rather than it be speculated about in conjunction with a billion-and-a-half dollar lawsuit? Furthermore, once the suits were filed, would it be wise for American Equity to make any public comments? Of course not. Athene wouldn’t even answer a yes-or-no question regarding a decade old reinsurance contract with American Equity.

Although none of the parties would make a comment that unveiled what did happen, I believe that it’s clear that American Equity is the insurance company, and that the migration of private equity firms into the insurance industry changes how we must react going forward.

Going forward, we must consider why an announcement was made just as carefully as we consider what it said. It is somewhat poetic that a company like American Equity, which long bemoaned the introduction of private equity into the insurance world, could have possibly been tied to this drama by fulfilling its responsibility to its stakeholders — the same stakeholders American Equity has cited as the basis for objecting to the entry of private equity firms into this world in the first place.

— Read 8 More Dave Ramsey Myths Debunked on ThinkAdvisor.


Michael J. Markey Jr. (Photo: MM)

Michael Jay Markey Jr. is a co-founder and owner of Legacy Financial Network and its associated companies. He has been a member of the Million Dollar Round Table member and a winner of Court of the Table and Top of the Table honors.