American Equity's Mysterious Suitor

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 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.