Merger with Athene

6 Months Ended

Jun. 30, 2022

Business Combination and Asset Acquisition [Abstract]

Merger with Athene

3. Merger with Athene

On January 1, 2022, Apollo and Athene completed the previously announced merger transactions pursuant to the Merger Agreement. As a result of the Mergers, AAM and AHL became subsidiaries of AGM.

Under the Merger Agreement, each issued and outstanding Athene common share was converted automatically into 1.149 shares of common stock of AGM and any cash paid in lieu of fractional shares. The purchase price was as follows:

(In millions, except share price data and exchange ratio)
AHL common shares purchased	138
Exchange ratio	1.149
Shares of common stock issued in exchange	158
AGM Class A shares closing price	$	72.43
Total merger consideration at closing	$	11,455
Fair value of estimated RSUs, options and warrants assumed and other equity consideration1,2	699
Effective settlement of pre-existing relationships3	896
Total merger consideration	13,050
Fair value of AHL common shares previously held (55 million shares) and other adjustments4,5	4,554
Total AHL equity value held by AGM	17,604
Non-controlling interest6	4,942
Total AHL equity value	$	22,546
1 AGM issued one-time grants of fully vested RSUs and options to certain executives and shareholders of Athene vesting upon consummation of the Mergers. Additionally, all issued and outstanding warrants of Athene prior to the Merger Date were exchanged for shares of AGM common stock at the time of the Mergers. The fair value of these awards is $600 million and is treated as part of consideration transferred.
2 AGM issued replacement awards for all outstanding Athene equity awards. Ninety-nine million dollars was included as part of consideration for the portion that was attributable to pre-combination services and $53 million will be treated as post-combination compensation expense.
3 The pre-existing relationship related to receivables, payables, and dividends between Apollo and Athene. Total fees payable to AGM by Athene for asset management and advisory services were approximately $146 million. A cash dividend of $750 million was declared by Athene to its common shareholders with Apollo owning 100% of the common shares as of the dividend record date.
4 Based on the December 31, 2021 closing price of AHL common shares on the NYSE.
5 Other adjustments includes pushdown of goodwill arising out of deferred tax liabilities associated with identifiable net assets of Athene.
6 Non-controlling interest in Athene includes holders of Athene’s preferred shares and third-party investors in ACRA and in consolidated VIEs of Athene. The fair value of Athene’s preferred shares was based on the closing stock price of Athene’s preferred shares immediately prior to the consummation of the Athene merger and the fair value of the non-controlling interest in ACRA was determined using the discounted distribution model approach.

The value of the consideration at closing is subject to certain post-closing adjustments, which could represent an adjustment to the preliminary determination of goodwill recorded.

The Mergers were accounted for as a business combination. The consideration has been allocated to Athene's assets acquired and liabilities assumed based on estimates of their fair values as of the Merger Date. The fair value of assets acquired, and liabilities assumed represent a provisional allocation, as the Company’s evaluation of facts and circumstances available as of the Merger Date is ongoing. The business combination was achieved in steps. The Company previously held its equity interests in the acquiree at fair value.

Goodwill of $4.2 billion has been recorded based on the amount that the Athene equity value exceeds the fair value of the net assets acquired less the amounts attributable to non-controlling interests. Goodwill is primarily attributable to the scale, skill sets, operations, and synergies that can be achieved subsequent to the Mergers. The goodwill recorded is not expected to be deductible for tax purposes.

The financial statements will not be retrospectively adjusted for any changes to the provisional values of assets acquired and liabilities assumed that occur in subsequent periods. Any adjustments will be recognized as information related to this preliminary fair value calculation is obtained. The effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of any change to the provisional amounts, will be recorded in the same period as the financial statements, calculated as if the accounting had been completed at the Merger Date. The purchase price allocation is expected to be finalized as soon as practicable, but no later than one year from the Merger Date.

The following table summarizes the provisional fair value amounts recognized for the assets acquired and liabilities assumed and resulting goodwill as of the Merger Date:

(In millions)	Fair Value and Goodwill Calculation
Merger consideration	$	13,050
Fair value of previously held equity interest	4,554
Total Athene Value to be Held by the Company	17,604
Total Value to Allocate
Investments	175,987
Cash and cash equivalents	9,479
Restricted cash and cash equivalents	796
Investment in related parties	33,786
Reinsurance recoverable	4,977
VOBA	4,547
Assets of consolidated variable interest entities	3,635
Other assets	5,754
Estimated fair value of total assets acquired (excluding goodwill)	238,961
Interest sensitive contract liabilities	160,205
Future policy benefits	47,120
Debt	3,295
Payables for collateral on derivatives and securities to repurchase	7,044
Liabilities of consolidated variable interest entities	461
Other liabilities	2,443
Estimated fair value of total liabilities assumed	220,568
Non-controlling interest	4,942
Estimated fair value of net assets acquired, excluding goodwill	13,451
Goodwill attributable to Athene	$	4,153

Included within the above are provisional amounts for (1) VOBA, (2) interest sensitive contract liabilities, (3) future policy benefits, and (4) other assets and other liabilities for the portion of net assets acquired relating to other identifiable intangibles and deferred taxes, based on the availability of data as of the date the financial statements were available to be issued. Any adjustment to provisional amounts will be made prospectively as data becomes available. The income effects from changes to provisional amounts will be recorded in the period the adjustment is made, as if the adjustment had been recorded on the

Merger Date. In the second quarter of 2022, measurement period adjustments decreased provisional goodwill by $28 million, primarily relating to a decrease in interest sensitive contract liabilities and future policy benefits. The effects of the measurement period adjustments were immaterial to the prior period condensed consolidated statement of operations. The Company expects to finalize purchase accounting as soon as practicable but no later than one year from the Merger Date.

The Company performed a valuation of the acquired investments, policy liabilities, VOBA, other identifiable intangibles, and funds withheld at interest payables and receivables using methodologies consistent with those described in note 2 and note 7.

Value of business acquired and Other identifiable intangible assets

VOBA represents the difference between the fair value of liabilities acquired and reserves established using best estimate assumptions at the Merger Date. Other identifiable intangible assets are included in other assets on the condensed consolidated statement of financial condition and summarized as follow:

Distribution Channels	Trade Name	Insurance Licenses
These assets are valued using the excess earnings method, which derives value based on the present value of the cash flow attributable to the distribution channels, less returns for contributory assets.	This represents the Athene trade name and was valued using the relief-from-royalty method considering publicly available third-party trade name royalty rates as well as expected premiums generated by the use of the trade name over its anticipated life.	Licenses are protected through registration and were valued using the market approach based on third-party market transactions from which the prices paid for state insurance licenses could be derived.

The fair value and weighted average estimated useful lives of VOBA and other identifiable intangible assets acquired in the Mergers consist of the following:

	Fair value (in millions)		Average useful life (in years)
VOBA Asset	$	4,547	7
Distribution Channels	1,870		18
Trade Name	160		20
State Insurance Licenses	26		Indefinite
Total	$	6,603

As of the Merger Date, Athene's financial results are reflected in these condensed consolidated financial statements. Athene's revenues of $1,980 million and $1,746 million and net income (loss) of $(1,930) million and $(3,240) million are included in the condensed consolidated statement of operations for the three and six months ended June 30, 2022, respectively. Transaction costs of $18 million and $36 million were incurred during the three and six months ended June 30, 2022, respectively, and are included in general, administrative and other on the condensed consolidated statements of operations.

Pro Forma Financial Information

Unaudited pro forma financial information for the three and six months ended June 30, 2021 is presented below. Pro forma financial information presented does not include adjustments to reflect any potential revenue synergies or cost savings that may be achievable in connection with the Mergers and assume the Mergers occurred as of January 1, 2021. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of future operations or results had the Mergers been completed as of January 1, 2021.

(In millions)	Three months ended June 30, 2021		Six months ended June 30, 2021
Total Revenues	$	7,075	$	13,570
Net income attributable to Apollo	1,320		3,032

Amounts above reflect certain pro forma adjustments that were directly attributable to the Mergers. These adjustments include the following:

•the elimination of historical amortization of Athene’s intangibles and the additional amortization of intangibles measured at fair value as of the Merger Date;

•the prospective adjustments to the book value of AFS securities and the fair value of mortgage loans, which will be amortized into income based on the expected life of the investments.