US-based Ares Management in buyout talks with AMP

California-based private equity firm Ares Management is in talks to buy the $4.48bn wealth manager AMP, according to sources. Picture: Hollie Adams/The Australian

California-based private equity firm Ares Management is in talks to buy the $4.48bn wealth manager AMP, in a move that could spark an auction or a break-up of the 171-year-old financial services company.

AMP confirmed on Friday it had received an indicative, non-binding, conditional proposal from Ares to acquire 100 per cent of the shares in AMP by way of scheme of arrangement.

“AMP notes discussions on the proposal are at a very preliminary stage and there is no certainty that a transaction will eventuate,” AMP said.

This sparked a 17.7 per cent surge in AMP shares to a six-week high. At 1045 AEDT they were trading at $1.50, giving the company a market capitalisation of $5.1bn.

AMP said a portfolio review was contining and it had received “significant interest” in its assets and businesses and was “assessing a range of options in a considered and holistic manner, including continuing to pursue its three-year transformation strategy, with a focus on maximising shareholder value”.

It comes nearly two months after AMP essentially put itself up for sale when new chairman Debra Hazelton launched strategic review of the business following management upheaval and a rush of funds flowing out of the firm as its business model has come unstuck in the wake of the Hayne Royal Commission.

Last week The Australian revealed that fund heavyweight KKR & Co had a team looking at whether it can make various AMP scenarios stack up.

Working for the Ares buyout fund is understood to be investment bank Morgan Stanley.

Ares, which is listed on the New York Stock Exchange has been given access to AMP’s data room and its eyeing a full takeover of the beaten-down wealth player.

AMP closed on Thursday at $1.28, down 2.5c a share. This gives the company a market capitalisation of $4.4bn. It is understood the informal Ares offer is closer to $5bn.

The AMP board has formed a portfolio review committee which is meeting about once a week to discuss developments in the process. The board is aiming to give investors an update on its strategic review before year’s end.

Ares has over $US149bn ($211.3bn) in assets under management and markets itself as an alternative investment manager operating across credit markets, private equity and real estate.

The company counts former Credit Suisse Australian head John Knox as its Australian and New Zealand chairman.

Earlier this week Ares chief executive officer Michael Arougheti told an investor briefing that the September quarter was the firm’s “largest fundraising quarter ever” with $US12.7 billion of gross capital raised across its portfolio.

He also talked up the prospect of acquisitions, particularly through Asia, but was not specific.

“We will continue to be active on the acquisition front, where we can add new capability, new distribution, new geographies that we think will accelerate our growth into the favourable backdrop,” Mr Arougheti told investors.

“We’re now at a size and capability, where we can bring teams on to the platform, surround them with capital and structure and actually grow pretty sizable businesses organically in a way that is just much more accretive to long-term value creation than buying. So while we look at all things the bar, while it’s always been high I think is getting higher, just given our ability to organically grow some of these step out strategies,” he said.

The interest by Ares comes after AMP has launched a review of its Australian business through investment banks Credit Suisse and Goldman Sachs.

The banks have been assessing options for the overall company, which could include a break-up of AMP.

The Australian listed business comprises the AMP Capital, real estate funds management division, its financial planning operation and its banking arm.

Other buyout funds have been circling AMP but most have been eager to see the share price fall before making an approach.