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Brookfield Asset Management Inc.’s big deal to boost its insurance efforts was met with an underwhelming reception from its partner’s investors, who sent its shares tumbling.

American Equity Investment Life Holding Co. fell nearly 15 per cent, to US$27.49 a share, as investors learned a competing offer for the entire company was now off the table after American Equity and Brookfield made their deal. Brookfield stock traded up during Monday’s session before closing down slightly on the Toronto Stock Exchange at $44.40.

Stockholders in American Equity had bid up the shares after two of its competitors, Athene Holding Ltd. and Massachusetts Mutual Life Insurance Co., made an unsolicited takeover bid for the Iowa company last month. Toronto-based Brookfield, which had been in discussions with American Equity for much of the year, stepped in with an offer of US$37 a share and American Equity’s board rejected the US$36-a-share takeover bid, saying it was “opportunistic” and “significantly undervalues the company.” (At COVID-19 market depths in March, it traded below US$10.)

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Brookfield’s offer was for a minority stake in the company, however. Documents filed Monday show Brookfield’s commitment to buy more American Equity stock as part of the partnership will lead it to own anywhere from 15 per cent to 19.9 per cent of the company. That leaves existing shareholders with the remainder.

American Equity’s suitors said Monday they were abandoning their offer. Brookfield will now spend US$337-million on 9.1 million American Equity shares that closed Monday at US$250-million. The next round of investment could range from about US$150-million to US$400-million, depending on the stake.

Monday’s market action means investors who were holders of American Equity stock for the short-term acquisition gain are out, and those who remain must see whether Brookfield can help create, as the company calls it, “AEL 2.0." In August, before the news of all of American Equity’s suitors broke, analyst John Barnidge of Piper Sandler & Co. set a US$25 price target for the company’s shares, noting “a challenging distribution environment for its products, which pales in comparison to the strong level of sales volume reported by Athene.”

As part of the deal, Brookfield will take US$5-billion of annuities off American Equity’s books as part of a reinsurance program, and commit to absorbing another US$5-billion on annuities business. By removing that from the American Equity balance sheet, the Iowa insurer figures, it can free up US$320-million to US$350-million of capital, which American Equity said “could be deployed into share repurchases, organic growth and other strategic initiatives.” It calls this a transition from a traditional insurance model to a new one based on “return on assets.”

American Equity said it would spend up to US$500-million on share buybacks to blunt the share dilution from issuing new stock to Brookfield.

Brookfield, for its part, gets a new market for its alternative-investment strategies with American Equity’s customer base. At an investor day the company held in late September, chief executive officer Bruce Flatt said the company has been slow to move into insurance, but with interest rates near zero, “the time is right for us to consider expanding the small insurance operations we have."

Analyst William Katz of Citigroup Global Markets Inc. upgraded Brookfield shares on Monday to “buy,” saying “the merits of the deal alters the somewhat stale narrative and opens up an incremental growth path.”

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Separately, Brookfield confirmed that it is acquiring 12.5 million square feet of office properties in India from developer RMZ Corp. for US$2-billion. Brookfield is planning an initial public offering of an India real estate investment trust. It has US$4.4-billion in its portfolio in that country, it says in its offering documents.

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