Apollo is taking full ownership of Athene. Here's how the mega insurance deal is part of a push to overhaul the PE giant's tarnished image.

• Apollo said Monday it would acquire longtime affiliate Athene Holdings.
• The deal would create a $29 billion conglomerate and put to rest conflict of interest issues that previously arose from Apollo managing Athene as an independent company.
• “There’s no doubt the cross ownership structure of these two companies led to complexity and questions,” said Glenn Schorr, an analyst with Evercore ISI who covers Apollo. “This merger would clean all of that up.”
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Apollo Global Management’s proposed acquisition of longtime affiliate Athene Holding Ltd. will create a $29 billion conglomerate — and put to rest conflict-of-interest questions, according to analysts. 

If approved by shareholders, the deal, announced Monday, will usher the marriage of increasingly interconnected businesses.

Athene, an insurance company now valued at $10 billion, has become one of Apollo’s largest sources of investment capital, supplementing the billions of dollars it receives from a clientele largely made up of pension investors, sovereign wealth funds, and other institutional investors. Athene capital accounts for about 40% of the roughly $450 billion of assets under Apollo’s management. 

Apollo, in turn, has served as the engine for returns that insurance companies like Athene rely on amid low interest rates and an overheated stock market.

The close connection between the companies has also spurred questions of whether Athene’s business was serving the best interests of its shareholders  — questions that Athene’s chief executive said had stymied its own growth. Athene’s management is controlled by Apollo, pays Apollo management fees, and invests its capital solely in Apollo vehicles.

“There’s no doubt the cross ownership structure of these two companies led to complexity and questions,” said Glenn Schorr, an analyst with Evercore ISI who covers Apollo. “This merger would clean all of that up.”

Athene’s unwieldy management structure under Apollo had frustrated the growth of its market cap and ambitions to join the S&P 500, its chief executive said on a call held Monday morning to discuss the merger deal.

“Our candidacy [for the S&P 500] has been weighed down by stock market reaction to our operating performance,” Jim Belardi, Athene’s CEO, chief investment officer, and cofounder said during the call. “Athene and Apollo combined is a prime candidate for the S&P 500. I think it will be a financial juggernaut going forward.”

The deal would serve as another step in a series of reforms Apollo said it would either explore or undertake in the wake of revelations its cofounder and CEO, Leon Black, had paid $158 million to the convicted pedophile Jeffrey Epstein. As part of that upheaval, Black said he would step down as CEO of the firm by his 70th birthday in July. He will remain as chairman of Apollo’s board.

In the proposed merger deal with Athene, Apollo said it would eliminate its dual-class voting shares, a governance change it said it would explore in January, when it released a report it commissioned to detail Black’s associations with Epstein.  

“It gives Apollo full c-corp status in an elegant, low-risk way because they know [the Athene] business so well,” said Stuart Degg, a London-based investor who has worked with Apollo.

Marc Rowan, an Apollo cofounder and its incoming CEO, said on the call that he had “heard about our complexity of structure and complexity of governance.” The single-voting-class shares would “remove the private partnership remnants of governance and transition [us] toward a transparent, diverse, best-in-class governance, making us eligible for broader index inclusion.”

The merger would give a welcome boost to Apollo’s own market value. The company is worth a quarter of its rival Blackstone, despite having a pool of assets under management that equates to about 70% of the size of Blackstone’s.

Apollo’s acquisitive appetite remains unabated. Apollo and Athene are in talks with Greensill Capital to acquire its core operations after the troubled supply-chain finance firm filed for insolvency protection Monday, The Wall Street Journal previously reported. 

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