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Here's Why American Equity Investment Life Holding Is Plunging on Monday

By Matthew Frankel, CFP® – Oct 19, 2020 at 2:04PM

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Shares of the insurer were down by nearly 20% on news that disappointed investors.

What happened

The stock market was largely flat Monday morning, but American Equity Investment Life Holding (AEL -1.09%) was a big exception. As of 11:45 a.m. EDT, shares of the annuity provider and life insurer were down by 19%.

So what

American Equity's plunge was caused by the announcement of a partnership with Brookfield Asset Management (BN 3.02%), where Brookfield agreed to reinsure $10 billion of American Equity's liabilities and also agreed to make a large equity investment (a 19.9% stake) at a substantial premium to the company's recent stock price.

Man with head down on laptop keyboard.

Image source: Getty Images.

Normally, you might expect news like this to make a stock soar. After all, Brookfield just committed to buy shares of American Equity for $37 -- a 15% premium to the stock's price before today's meltdown.

However, the stock dropped because American Equity had received a takeover offer at $36 per share in early September from MassMutual and Athene, which has now been officially rejected.

Now what

The main reason for today's downward move is that American Equity shareholders were likely banking on a takeover (and therefore a quick payday) of the insurance company. While today's partnership announcement is a good thing for American Equity's business -- and it is certainly reassuring that Brookfield is willing to pay so much for a stake in the company -- it wasn't the quick windfall that shareholders had apparently been hoping for.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Brookfield Asset Management. The Motley Fool has a disclosure policy.

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