AMP shares savaged after Ares abandons takeover bid

Ares pulls out of $6bn-plus bid but continues to ‘engage’, as AMP’s profit remains under pressure, shares plunge 10 per cent.

AMP CEO Francesco De Ferrari hands down full-year results and an update on takeover deliberations on Thursday. Picture: Britta Campion / The Australian

AMP chief Francesco De Ferrari has pledged to resolve the potential sale of its marquee funds management and infrastructure division as soon as possible, after US suitor Ares Management dumped its $6bn-plus bid for the group and triggered a damaging sell-off in the stock.

The under-pressure 172-year-old wealth manager on Thursday said it continues to “engage constructively” with investment firm Ares on the possible sale of its capital division, which houses its infrastructure, real estate and equities businesses.

Mr De Ferrari said AMP remained open to all options for the capital division, including a spin-off, partnerships or a sale, but he was keen to bring the process to a head soon.

When asked if he was aiming for the process to be resolved by mid-year, Mr De Ferrari said:

“I would definitely hope so.

“Our ultimate fiduciary duty is to try to find if there is a better option to our existing strategy that’s going to deliver more value to shareholders.”

Bell Potter analysts were pushing for a resolution of the matter by AMP’s annual general meeting on April 30.

Investors pummelled AMP’s shares on news of the whole-of company bid disappearing, with the stock sinking 11 per cent to $1.37 on Thursday. That marked its lowest level in more than three-months.

Mr De Ferrari said the sale process for all and parts of AMP had been somewhat of a distraction, but despite that and the challenges of COVID-19 last year the group had met 90 per cent of its commitments under his three-year turnaround plan.

He wouldn’t delve into specifics about why Ares walked away from its indicative offer for all of AMP, only saying:

“Their core capability really is in the asset management space, they have a lot of complementary skills with our asset management business and we are continuing to engage them.”

AMP’s board said it was advised on Wednesday night of Ares’ intention not to proceed with a whole-of-company bid.

The company has also ended its strategic sale review of its other divisions, including wealth management, the bank and New Zealand wealth noting it believed its transformation plan was the “optimal outcome” for shareholders across those decisions.

Analysts were scathing of AMP’s update on Thursday including a slide in underlying annual profit, but one major investor had a different view.

“It’s a difficult environment to get a good price,” Allan Gray analyst Tim Hillier said.

“They’ve got some good businesses there and we are very happy - that in the absence of a compelling offer - they keep running those businesses.”

Ares declined to comment on the scrapping of the whole of company bid on Thursday.

AMP reported a 32.8 per cent slide in full-year underlying profit to $295m, missing expectations, while statutory profit printed at $177m for the year ended December 31, compared to a bulging $2.5bn loss in 2019.

The company’s four key divisions - wealth management, the bank, AMP Capital and NZ wealth - all posted declines in underlying net profit for last year, compared to 2019.

Velocity Trade analyst Brett Le Mesurier said AMP investors would be disappointed by Ares walking away from a whole of company bid and the wealth group’s earnings performance.

“Neither of these has occurred and the share price should resume its downward path but with more gusto,” he added.

“AMP‘s sale to Ares is off and so is its profit... there was no profit in the second half 2020.”

Citigroup analysts labelled AMP’s earnings a “messy result”, noting the capital division’s profit was lower than expected and the focus would be on the withdrawal of Ares’ bid.

AMP’s board didn’t declare a final dividend after paying 10 cents a share, in a special dividend in the 2020 first half.

The board was committed to restarting dividends, a share buyback and other capital management initiatives in 2021, subject to the completion of the portfolio review, market conditions and business performance.

AMP last year endured a number of scandals linked to the conduct of two executives. That led to the exit of AMP Australia boss Alex Wade and the demotion of then AMP Capital chief Boe Pahari.

Mr Pahari was demoted due to revelations becoming public of a prior penalty for a sexual harassment complaint. Investor angst over the issue led to the departure of former AMP chairman David Murray and board member John Fraser.

The Australian in January revealed Macquarie Group was among three parties in renewed talks to buy AMP’s banking arm.

A non-binding offer by Ares was pitched in October at an implied value of $1.85 a share.

The AMP earnings results showed assets under management in the Australian wealth management unit fell 8 per cent to $124.1bn, while AMP Capital experienced a 7 per cent decline in assets under management. The company said that reflected volatile investment markets and net cash outflows, which included the Australian Government’s early release of superannuation program.

Australian wealth management endured massive net cash outflows of $8.3bn in 2020, including $1.8 billion in early release payments and the $1.8bn loss of corporate super mandates. Pension payments to AMP customers were $2.1bn in 2020.

The results also showed AMP continued to rationalise its financial adviser numbers. There was a 37 per cent reduction in practice numbers and a 26 per cent reduction in adviser numbers to 1,573.

Assets under management on AMP’s North investment platform continued to grow, up from $47.6b to $51.6bn as at December 31.

On the outlook for the wealth division, AMP said 2021 earnings would be similar to last year’s levels, as margin compression was offset by cost savings.

Mr De Ferrari said he had completed the first 12 months of a three-year turnaround program and given the program of change being implemented the “good work” would not show up in the earnings numbers for a few years.

At AMP Capital total assets under management decreased to $189.8bn in 2020 from $203.1bn a year earlier. The company linked the decline to the economic impacts of COVID-19 on investment markets and the higher internal cash outflows in the wealth division.

External net cash outflows were $1.7bn for AMP Capital in 2020. That was attributed to public markets redemptions and was partially offset by net cash inflows of $2.7bn from infrastructure and real estate as capital was deployed.

The banking division saw earnings decline 16 per cent last year, compared to 2019.

AMP said it remained committed to delivering $300m of annual run-rate cost savings during its three-year turnaround plan.

The group said it would finish its customer compensation program by mid year.

AMP had a capital surplus of $521m above regulatory requirements.