Investors surged into shares of American Equity Investment Life Holding Co. amid reports, and later a confirmation, that the company was discussing a potential transaction.
Reuters reported May 22 that the insurer was in deal talks and stated that Athene Holding Ltd. or FGL Holdings were among the potential suitors. American Equity confirmed that it was in preliminary discussions about a potential deal, though it stressed that it could not guarantee one would be inked.
Shares of the company finished up 20.09% to $34.83 for the week ending May 24.
The S&P 500 gained 0.28% to 2,727.76 during the week, while the SNL U.S. Insurance Index fell 0.21% to 1,003.56.
RBC Capital Markets equity analyst Kenneth Lee said American Equity is more likely to be acquired by a private equity firm than either Athene or FGL because either company would be essentially "paying for what they already have," as they both operate businesses in the indexed annuity market.
"Historically, we have observed that Athene would acquire the in-force blocks of business and that's their preferred way," he said. "And subsequently, they would optimize the portfolio to generate incremental returns."
Private equity firms prefer the stability that indexed annuities offer, Lee said, adding that a financial buyer could even move the insurer offshore to harness better tax savings.
"We can envision a scenario whereby a [private equity] firm or some other similar entity sets up an offshore of vehicle similar to Athene. That would help level the playing field," he said.
SunTrust analyst Mark Hughes in a research note wrote that American Equity's present valuation is attractive because it is discounted compared to its life insurance peers.
"The indexed annuity sector is attractive because carriers like [American Equity Investment Life] have very large investment portfolios relative to their equity base, which creates the opportunity for acquirers to reposition assets for higher yield, while also generating fee income," he wrote.
If a deal between American Equity Investment Life and Athene were to materialize, however, it could create the largest U.S. underwriter of fixed-index annuities.
In the property and casualty space, activist investor Carl Icahn teamed up with Arca Capital to fight AmTrust Financial Services Inc.'s go-private deal.
In a shareholder presentation, Icahn argued the $13.50 per share buyout offer was an extremely undervalued proposition. He claimed that the deal should be valued at between $20 and $35 per share, bringing the total valuation of the company to around $6.8 billion. He also argued that Deutsche Bank Securities' oversight of the deal is "inherently conflicted" because of its contingent fee structure.
Icahn said the transaction was an "opportunistic plot to take out the minority shareholders at an extremely cheap price ahead of a period of earnings recovery." AmTrust responded in its own scathing statement that Icahn's valuation analysis "selectively includes only two levers with mistaken assumptions to advance his own self interests." The company also argued that in Deutsche Bank's independent analysis included a "variety" of industry standard valuation methodologies.
In January, AmTrust CEO Barry Zyskind and George and Leah Karfunkel offered to buy for cash all the insurer's outstanding shares not already owned by their families. They also partnered with Stone Point Capital LLC as part of the go-private deal.
Icahn owns about 9.4% of AmTrust, while Arca owns about 2.4% of AmTrust's outstanding shares.
The explosive headlines over Icahn's lawsuit aimed at blocking the deal did not lead to a major change in AmTrust's stock price, though it did gain 2.16% to end the week at $13.72.
Elsewhere, a pair of health insurance brokerages saw their stocks makes solid gains this week. Shares of Health Insurance Innovations Inc.
