AMP fights for future as it bets on big split
AMP’s investors are getting behind the planned spin-off of its $53bn private markets business after it axed protracted talks with US suitor Ares.
AMP’s investors are supporting the beleaguered group’s planned spin off of its $53bn private markets business but have questioned why the decision took so long, as AMP axed protracted talks with potential US suitor Ares Management.
The decision to demerge the private markets unit – which houses infrastructure and real estate investments – has also sparked the exit of controversial executive Boe Pahari. He was dramatically demoted last year when details of a prior sexual harassment claim became public.
AMP’s new plan, which follows a strategic review led by chairman Debra Hazelton, will see 172-year old AMP retain a stake of up to 20 per cent in the spun-off private markets business. The demerger transaction is expected to be complete in the first half of 2022, with the division listed on the ASX.
Sources said the division’s staff attended a town hall meeting on Friday – led by deputy chief of AMP Capital David Atkin – to hear more about the plan. AMP’s broader employees were also briefed on the strategy by Ms Hazelton, outgoing group chief executive Francesco De Ferrari and finance boss James Georgeson.
“The review process was long and rigorous, ideally it would not have taken so long but we have been very consistent in that the right thing for our shareholders was to thoroughly assess all the options in front of us,” Ms Hazelton told staff at the briefing, in comments relayed to The Australian.
“I do understand that for some teams in AMP Capital the prospect of working, or partnering with a successful US fund manager was very exciting. However, in the end the detailed proposal on the table did not deliver optimal value for long-term shareholders and that’s what must guide us in our decision making.”
She admitted the uncertainty around ownership of the private markets unit meant it had “been tough” for employees over recent months.
The AMP board’s decision to call off negotiations with Ares comes just a week before it fronts investors at an annual general meeting, where the board seeking to avert a second strike against its pay report.
The latest strategic plan will see AMP continue to seek a sale or partnership for its global equity and fixed income business, while the multi-asset group is in the process of being transferred to the AMP Australia division.
Existing shareholders will receive shares in the demerged private markets unit, proportional to their holdings in AMP.
The company also said it will restart a program to buy back shares worth up to $200 million.
AMP’s shares climbed in early trading on Friday as much as 7.6 per cent on news of the mooted spin off transaction, before losing ground to close 0.9 per cent up at $1.135 in afternoon trading. That is not far off record lows the stock touched this week.
AMP shareholder Allan Gray is positive on the spin-off plan labelling it a “great outcome” but highlighted a preference for the parent entity to completely exit its holding in the standalone private markets business.
“This allows AMP Capital the separation from AMP Limited and all of the mess that comes with being attached to AMP limited,” Allan Gray portfolio manager Simon Mawhinney said.
“It allows them to come up with incentive schemes that are fit for purpose for a fund manager and aligned with shareholders.
“The only thing I was disappointed to read was the up to 20 per cent that they will retain. I think that‘s not ideal... a clean break is what we want just like BHP and South32, there’s no need to keep 20 per cent, it would be an overhang.”
Mr Mawhinney said AMP retaining up to 20 per cent in the new entity would also deliver the group a blocking stake if a takeover offer was to emerge.
He is of the view AMP could have embarked on a spin-off of private markets much earlier.
“It‘s just a real pity this did not happen six or 12 months ago.”
UBS analysts raised issues with the proposed spin-off including separation costs, after the “risky strategy” of the portfolio review.
“Nine months later, it would appear that external parties have struggled to see enough value in the AMP business to warrant taking it on. AMP shareholders will now have to fund separation costs, the removal of stranded costs, the pay down of debt and likely another major cost out,” UBS said.
AMP investor Merlon Capital Partners applauded Friday’s announcement and had been pushing for a demerger of private markets for more than two years.
“There were some difficult decisions Debra Hazleton had to make around leadership and the private markets business over the past eight months. While of course we would always like things to happen quicker, we feel we have landed in the right place,” Merlon’s Hamish Carlisle said.
AMP said the demerger under a new brand would “unlock further value” in the private markets business, simplify its structure and provide operational independence. The private market unit had $59bn of assets under management at December 31, but about $53bn are transferring given AMP’s stake in real estate manager PCCP is not part of the spin off.
The ASX announcement ends months of fraught back and forward negotiations with Ares, first for a $6bn sale of the entire company which was abandoned in February. The pair then sought a joint venture but couldn’t agree on terms within a exclusivity period and remained in talks on that transaction and also on the sale of the entire private markets unit.
The move to demerge the private markets arm sees Mr Pahari, AMP Capital’s global head of infrastructure equity and North West Region, leave the business, likely with a lucrative pay out over time as investment funds he managed mature. His elevation to lead AMP Capital last year fuelled investor anger when it was revealed he was earlier penalised over a sexual harassment matter.
He was then demoted and the furore also led to the exit of then chairman David Murray.
AMP is undergoing a CEO changeover with deputy ANZ chief executive Alexis George to take the reins in the third quarter. AMP said a global search for a CEO of private markets was underway.
The volatile deal talks had prompted investor frustration at the process, given AMP’s board started a strategic review in early September last year.
AMP has appointed Michael Sammells, currently AMP Capital chairman, as the private markets’ interim chairman.
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