Apollo Global to switch from a partnership to a corporation

[May 02, 2019]  By Greg Roumeliotis

(Reuters) - Apollo Global Management LLC, a manager of alternative assets such as private equity and corporate credit, said on Thursday it would convert from a partnership to a corporation, in a bid to get more investors into its stock.

Apollo is hoping the move, which will take effect in the third quarter of the year, will boost its share price, which has traded at a discount to traditional asset managers such as BlackRock Inc for close to a decade.

Peers KKR & Co Inc and Ares Management Corp announced last year they would also make the switch. Blackstone Group LP, the world’s largest alternative asset manager, said last month it would convert from a partnership to a corporation.

Under the so-called C-Corp structure, Apollo will pay corporate taxes on all its revenue, in exchange for enabling investors such as mutual funds and index trackers to buy the stock.

The additional tax burden has become less severe after the headline U.S. corporate tax rate was lowered effective last year to 21 percent from 35 percent.

Passive investors such as mutual funds, which are becoming more important as they manage more money, are restricted by their mandates from acquiring the stock of publicly listed partnerships.

Private equity firms pay corporate taxes under the partnership structure on the management fees charged to investors, but are mostly shielded from paying these taxes on performance fees.

Apollo said the expanded investor base was worth the tax hit.

"We believe (this) will simplify our structure and enable a much broader set of shareholders to participate in the exceptional long-term growth and profitability that we have been delivering to our investors," Apollo CEO Leon Black said a statement.

Apollo also announced first-quarter earnings on Thursday, reporting distributable earnings - the actual cash available for paying dividends - of $207.4 million in the first quarter, up from $188.6 million a year earlier.

This translated to distributable earnings per share of 50 cents, lower than the 56 cents analysts had predicted on average based on Refinitiv data.

Nevertheless, the announcement of the switch to a corporation sent Apollo shares surging about 5 percent in premarket trading to $34.42.

Fee-related earnings, the amount Apollo earns from management fees, were up 58 percent year-on-year at $209.8 million.

(Reporting by Greg Roumeliotis in New York; Editing by Chizu Nomiyama)

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