Ares’ AMP bid ‘beggars belief’: Macquarie

Macquarie analysts say the deal will see the 172-year-old wealth manager offload “jewel in its crown” for a steep discount.

Ares’ propsed joint-venture deal for AMP beggars belief, Macquarie says. Hollie Adams/The Australian

Ares’ $2.25bn joint venture bid for AMP Capital’s private markets business “beggars belief”, according to Macquarie analysts, who say the deal will see the 172-year-old wealth manager offload “the jewel in the AMP crown” for a steep discount.

AMP last month announced it had entered into a non-binding heads of agreement with Ares to pursue a joint venture for AMP Capital’s private markets business.

The proposed partnership with the US group includes the most valuable parts of AMP Capital: its private markets businesses, which span infrastructure equity and debt, real estate and other minority investments.

After conducting a sum-of-the-parts review of the capital division, Macquarie says AMP will be “left with the scraps” if the venture goes ahead as it stands.

While Ares will acquire 60 per cent of $2.25bn joint venture and assume management control, AMP will retain the remaining 40 per cent, as well as $900m of assets across seed, sponsor and related investments.

According to AMP, the partnership would turbocharge the growth of the business while unlocking value for shareholders.

But Macquarie analysts say the $2.25bn bid undervalues the business by 25 per cent.

“Our sum-of-the-parts analysis of AMP’s Capital division suggests around a $3.3bn valuation, split into $3bn for the private markets business — the subject of the JV proposal with Ares — and $0.3bn for the public markets business, which would be retained by AMP,” they said in a note to clients.

According to the broker, 91 per cent of AMP Capital’s pre-earnings relate to its private markets business, implying a 16.9 times trailing EBIT multiple. This compares with the 12.7 times multiple proposed under the Ares deal.

“Threat of institutional mandate losses is likely the reason for the variance, but based upon publicly available data, still appears to be a very material discount of around 25 per cent,” they said.

The public markets business, which AMP will retain, generates less than $20m of pre-tax earnings, according to Macquarie estimates.

“On our numbers, we do not see how AMP could agree to the deal in the form disclosed to the market.

“Should the jewel in the AMP crown be sold at such a steep discount, it would signal an even worse underlying state of the group (and AMP Capital division) than we are forecasting,” they warned.

AMP and Ares are currently part-way through a 30-day period to work towards a binding transaction.

If it goes ahead it will require foreign investment sign-off, regulatory approvals and a shareholder vote.

The proposed joint venture came after Ares walked away from its $6bn-plus whole-of-company bid for the group.

Shortly after the joint venture announcement, investment bank Jarden was tapped to advise on the future of AMP Capital’s flagship $7bn office property fund.

As revealed by The Australian last month, an advisory committee comprising three top real estate and corporate figures — former Future Future property head Barry Brakey, Wesfarmers director Sharon Warburton and property veteran Paul Say — has been set up to advise on options for the AMP Capital Wholesale Office Fund.

The move was partially driven by investors, understood to include top superannuation funds UniSuper, LGIAsuper and Commonwealth Superannuation Corporation, to ensure their holdings are protected under the proposed Ares tie-up and alternative options explored.

AMP shares finished Thursday session down 2 per cent at $1.43.