The insurance firm Brighthouse Financial (BHF 0.30%) had long been rumored to be a takeover target. In November, that rumor became a reality.
Aquarian Capital, a private equity firm backed by Abu Dhabi's sovereign wealth fund, announced in early November that it would purchase Brighthouse in an all-cash transaction valued at $4.1 billion. The deal is valued at $70 per share and represented a nearly 38% premium to Brighthouse's 90-day volume-weighted average price as of Nov. 5.
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Brighthouse was spun out from the insurance firm MetLife in 2017 and is one of the largest annuity and life insurance companies in the U.S. However, in recent years, inconsistent returns and declining capital levels have led many investors to expect an acquisition.
Aquarian said it will help Brighthouse pursue strategic growth opportunities and better serve its customers, distribution partners, and other stakeholders. Aquarian plans to invest in the company's platform and distribution franchise, as well as enhance the company's investment management infrastructure.
Following Aquarian's acquisition, which is expected to close sometime in 2026, Brighthouse will be taken private but continue to operate as a separate entity. Aquarian owns several other insurance brands, including Investors Heritage, Hudson Life, Somerset Reinsurance, and Via Management Solutions.
With Aquarian's announced acquisition, is Brighthouse yesterday's news?
Some potential for merger arbitrage
As mentioned above, Brighthouse is being acquired for $70 per share. As of this writing, the stock traded slightly below $65 per share. This means that investors have some doubt regarding the potential for the acquisition to close. It also presents an opportunity for merger arbitrage. This scenario occurs when the stock trades below the acquisition price following an acquisition announcement.
NASDAQ: BHF
Key Data Points
This offers investors a chance to examine the regulatory dynamics behind the deal and determine whether the acquisition will close. If investors perceive a high likelihood of the deal closing, they will purchase the stock. At current levels, there's a roughly 7.5% spread between Brighthouse's stock price and the acquisition value.
Given that Aquarian is funding the deal with committed financing that doesn't require taking on additional debt, the acquisition seems to have a high likelihood of closing.
However, I don't believe a 7.5% spread is large enough for investors to take a significant interest in the stock at this time. It's certainly not nothing, but I'm sure there are better long-term opportunities worth putting your time into.
For this reason, I view Brighthouse's stock as yesterday's news.
