Back to square one for AMP after Resolution pulls the plug

AMP chairman David Murray. Picture: AAP

Resolution Life boss Sir Clive Cowdery’s decision to pull his proposed $3.3 billion AMP Life acquisition is actually partly good news for AMP shareholders. But in terms of the immediate consequences, it’s overwhelmingly bad.

The good news is New Zealand’s decision to enforce the ring-fencing of $1.3 billion in Kiwi assets was used by Sir Clive as a reason to walk away.

AMP said it was still working on a deal. But then again, it would say that, and you might think that nine months after the deal was done last October a commercial resolution would have been found before this.

Taking AMP at its, word it wants to say there is a chance the deal could still be done. But given that it would be bad for both side, it makes more sense for AMP to walk.

If simplification is the name of the game, then AMP could achieve the same objectives by demerging the life book with its own shareholders, so they would get to control the assets.

The bad news, which sent AMP’s stock price down 15 per cent to a new all-time low of $1.82 a share on Monday, is the withdrawal means no dividend and the potential of a dilutive capital raising - neither of which is shareholder friendly.

Shareholders win then potentially on a dumb, bottom-of-the-cycle sale being canned. But they also lose on having to put their hands in the pocket to help pay for the company’s debt.

New Zealand is about 18 per cent of the AMP life company earnings, but about 26 per cent of embedded value, at about $1.3 billion, against the $5 billion total.

The $3.3 billion Resolution deal included $1.9 billion in cash, which was to be used in part (to the tune of about $800 million) to pay down debt.

That is why the potential cessation of the deal means a potential capital raising.

That is before you consider the hit AMP took to its already shrinking brand strength in last year’s royal commission.

In short, chair David Murray and his last best chance boss Francesco De Ferrari now have to go back to square one after Sir Clive pulled the pin, blaming the Kiwis.