Speculation resurfaces Westpac wealth back on AMP’s agenda

Westpac Wealth may be about to find a new home at AMP. Picture: NCA NewsWire / Steven Saphore

Speculation is mounting that AMP is back in talks with Westpac about a possible acquisition of its Westpac’s wealth management unit.

It comes with sources suggesting that Colonial First State, which is owned by Kohlberg Kravis Roberts and CBA, had put in a final bid for the business that amounted to about $600m.

This was a price well below Westpac’s initial price expectations.

Final bids for the unit were due on August 22 and it has been radio silence ever since.

Last month, there were suggestions that AMP did not put in a final offer by the deadline, but it was in talks with an offer submitted at a higher price than what Colonial was offering.

It is understood that AMP may have backed away but in recent weeks has returned to the negotiating table.

In the first round of the contest, CFS was thought to have been the only group to have put forward a conforming bid.

AMP reported results on August 11 and at the time it said that it was in for a $1bn-plus windfall after a series of asset sales, including its stake in Resolution Life Australasia and its fund manager Collimate Capital.

It said it would ramp up its capital return program rather than seek out fresh acquisitions.

Some believed that AMP would not be in a position to buy the business due to its commitment to its capital return program.

Yet strategically, experts believe that a deal makes sense.

AMP has the North wealth management platform and buying the Westpac business could save it spending on technology upgrades for the time being.

Synergies could also be extracted.

But there are shareholders that have bought into AMP solely to benefit from capital returns to investors and the big question is whether they would back AMP’s management when it came to an acquisition.

Sources say that AMP could fund its acquisition through debt.

Without its funds management unit and its life insurance operation, AMP only consists of a bank and a wealth management arm and market observers believe it needs to acquire a business to regain some meaningful scale.

Its market value is $3.9bn.

Earlier, it was thought that AMP would not be able to compete with other parties vying for Westpac’s wealth unit.

Private equity firm names that have been discussed as being around the situation are Bain Capital, JC Flowers and Apollo Global Management, which is a major shareholder in Challenger.

Other wealth managers like Hub24 and Netwealth were thought to have some interest only in Westpac’s Asgard business but not the wealth management unit as a whole.

The timeline for the sale process was extended, as bidders focused in on the wealth management unit’s performance up until the end of the June 30 financial year.

Earlier, it was anticipated that the unit would sell for at least $700m, but prices are understood to have again been adjusted downwards amid a period of market volatility.

Banks have been retreating from non-core operations to focus on mortgages and business banking.

Sources say that Westpac’s board is committed to a sale.

Advising on the sale of Westpac’s wealth management unit, which includes its Panorama and Asgard platforms, is investment bank Morgan Stanley.

Already, Westpac has offloaded the superannuation operations in its wealth management unit to Mercer Australia for $225m.

Earlier, Westpac had about $140.2bn of funds on its platforms, including $105bn on its Panorama platform at March.

Analysts at Jefferies said in a research note that with planned capital management initiatives equivalent to 29 per cent of the company’s market value, the group’s restructuring efforts decreasing the likelihood of further earnings shocks and wealth brands benefitting from cost initiatives, they have a buy on the stock.

They add that the North platform continues to attract inflows and remains competitive.