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Buyout Stocks Plunge as Tax Plan Risks Apollo's Athene Edge

(Bloomberg) -- Shares of Apollo Global Management LLC and other private equity firms fell after House Republicans introduced a tax plan that throws up a roadblock for Athene Holding Ltd., the insurer that accounts for about a quarter of Apollo’s asset-management fees.

A provision in the bill, section 4303, proposes a 20 percent excise tax on profits moved from U.S. corporations to related foreign entities, which would have a “meaningful impact” on Bermuda-based Athene’s tax rate, Evercore ISI analysts led by Thomas Gallagher wrote in a note to clients. The insurer cedes 80 percent of retail annuity liabilities and 100 percent of institutional liabilities to Bermuda, Keefe Bruyette & Woods analyst Ryan Krueger wrote in a note.

“Clearly this could be a negative for Athene, but a lot remains uncertain,” Krueger said. “It’s far more complex than this, but if Athene’s tax rate moved to 20 percent” the insurer’s 2018 earnings per share would fall 14 percent, he added.

Shares of Athene began slipping after 12:30 p.m. in New York, eventually falling 12 percent, their largest intraday decline ever. Apollo’s stock fell as much as 11 percent, its biggest decline since August 2015. That triggered 4.2 percent and 3.8 percent slumps in peers Blackstone Group LP and KKR & Co., respectively. Both firms are also affiliated with insurance operations.

Buyout Stocks Plunge as Tax Plan Risks Apollo's Athene Edge

Apollo benefits from Athene in several different ways, including by managing assets for the insurer and by owning stakes directly in Athene and an entity invested in Athene. The stakes were valued at $839 million on New York-based Apollo’s balance sheet as of Sept. 30.

The stocks pared their declines at the close of trading, with Athene, Apollo, Blackstone and KKR closing lower by 7 percent, 3.1 percent, 1.2 percent and 0.1 percent, respectively.

“It’s not clear to us whether there is a high probability of this portion of the bill getting passed without amendments,” the Evercore ISI analysts said. “Our sense is that there will be considerable push back on this, and there is a decent chance that it won’t be the worst-case scenario for Athene.”

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