(Reuters) - Private equity firm Apollo Global Management Inc (APO.N) said on Monday it had agreed to pay $1.6 billion to raise its stake in Athene Holdings (ATH.N), in a deal aimed at improving the performance of the U.S. annuity services provider’s stock.
Athene, which issues, buys and reinsures retirement savings account products for individuals and companies, has been a source of lucrative fees for Apollo, which manages its assets and invests them alongside its credit and buyout portfolio.
Apollo has exercised 45% voting control over Athene, even though it owned only a 17% stake, using a multi-class share structure that makes it inadmissible in some indices and less appealing to investors.
This, in turn, resulted in Athene trading at a discount to many of its peers in the insurance sector. Its shares had ended trading on Friday at $42 a share on the New York Stock Exchange, only slightly up from its initial public offering three years ago.
The deal ends the multi-class structure, giving all investors in the insurer one vote per share. Investors prefer single class structures because they can more easily hold management accountable for how companies are run.
Following Monday’s announcement, Athene’s stock price rose 6.33 percent to $44.66 a share.
Under the deal’s terms, Apollo will buy an additional 18% stake in Athene for cash and stock at $46.20 per share, boosting its stake in the Bermuda-based company to 35%. Apollo agreed to pay with $350 million in cash and a 7% stake in its holding company valued at $1.2 billion.
As part of the deal, Athene will also approve a $600 million share buyback program. Apollo agreed to lock up all its existing and newly acquired shares in Athene for three years. Athene’s shares in Apollo will not be subject to a lockup agreement.
“We believe the combination of these factors will greatly enhance Athene’s appeal to a much broader group of active and passive investors,” said Athene Chairman and Chief Executive Jim Belardi.
Founded in 2009, Athene had about $139 billion in assets as of the end of June. The company also invests in other insurance and reinsurance assets together with New York-based Apollo through an investment fund, Apollo/Athene Dedicated Investment Program, which has so far raised $3 billion from investors.
Removing complex stock classes is becoming more popular in the private equity world. In July, Carlyle Group LP (CG.O) said it would become the first publicly listed U.S. private equity firm to abolish its dual-class share structure.
Reporting by Chibuike Oguh in New York; additional reporting by Jessica DiNapoli; editing by Jonathan Oatis