AMP stalked by Ares for months

AMP’s downtrodden shareholders are hopeful a binding $6bn-plus bid eventuates for the 171-year-old wealth group, as US suitor Ares Management ramps up due diligence.

John Knox, former Credit Suisse Australia CEO, is leading Ares’ local efforts including the AMP tilt. Picture: Hollie Adams/The Australian

AMP’s downtrodden shareholders are hopeful a binding $6bn-plus bid eventuates for the 171-year-old wealth group, as US suitor Ares Management ramps up due diligence.

Investors are on tenterhooks as a whole-of-company AMP tilt looks like a real prospect, after Ares lobbed a preliminary and conditional bid to the target’s board.

Confirmation of the offer saw AMP shares surge 19.5 per cent to $1.53 on Friday, marking the biggest one-day rally in more than 15 years.

AMP confirmed it has received an “indicative, non-binding, conditional proposal” from global alternative investment manager Ares to acquire 100 per cent of the group via an agreed deal.

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

“AMP continues to progress its portfolio review announced on 2 September 2020. AMP has received significant interest in its assets and businesses and is assessing a range of options in a considered and holistic manner... with a focus on maximising shareholder value.”

Sources told The Weekend Australian that Ares made an informal approach to AMP ahead of the strategic review — and sale process — getting started in September. The indicative offer by Ares, which saw the Debra Hazelton-led AMP board open the door to a data room, happened in more recent weeks.

It’s understood Ares is pursuing AMP directly rather than through its private equity funds. If a binding offer for AMP is to emerge it is expected in December.

An Ares spokesman declined to comment.

New York-listed Ares has a market capitalisation of $US10.9bn ($15.5bn) and an exposure to infrastructure, real estate, credit and private equity sectors. As at September 30, assets under management totalled $US179.2bn.

Locally, the firm is led by former Credit Suisse Australia boss John Knox, who is rolling up his sleeves on the transaction alongside Morgan Stanley bankers including Rick Ball.

While Ares is seeking a whole-of-AMP transaction, investors still believe a break-up is possible once a deal is sealed, particularly as buyers view AMP’s infrastructure, real estate and equities division as the jewel in the crown.

AMP CEO Francesco De Ferrari. Photo: Britta Campion for The Australian

Allan Gray portfolio manager Simon Mawhinney, AMP’s second-largest shareholder, said the break-up value was vast.

“Whatever happens I think it will be split into various parts,” he added. “We are not strategic holders and would sell for the right price.”

Another AMP investor Merlon Capital Partners called on the board to maximise value.

“For us it‘s down to which approach maximises shareholder value and that could be a buyout of all of the company, sales of the parts, or a buyback and spin-off of AMP Capital,” Merlon’s Hamish Carlisle said.

Based on AMP‘s net tangible assets at $1.06 per share and analyst valuations of AMP Capital of as much as $4bn — or $1.16 per share — Mr Carlisle said a binding bid would need to be at an attractive price.

“You can get to numbers well north of $2 on fairly conservative assumptions.”

The Australian Shareholders’ Association monitor Ian Graves said retail investors wanted a “transparent and competitive” sales process.

“A lot of them would be interested in trying to recoup something out of it (AMP),” he added, referring to the downfall of the company over several decades.

Investment bankers are mindful that getting a transaction across the line will not be easy, particularly for a business marred by customer refund issues, class actions, and fund outflows stemming from the Hayne royal commission.

AMP divisions including wealth management, the bank, AMP Capital and New Zealand are also interlinked, creating challenges.

“It’s a complex organisation and it’s difficult to form a view on future earnings,” a banker said on the condition of anonymity.

Investors will also be keen to see AMP flush out any other buyer interest given Blackstone, KKR & Co and Carlyle have been suggested.

Ares also needs to lock down funding, and sources said it would likely draw on existing cash and further tap debt markets while funding was cheap.

A buyer could spin off parts of AMP it doesn’t want and issue shares in that entity.

In an October 28 earnings call, Ares finance and operating chief Michael McFerran talked up a “robust financial position and capital structure”.

Ares ended the third quarter with almost $US2bn in liquidity, $US869m in cash on the balance sheet and nothing drawn on its $US1.07bn revolving credit facility.

Any successful AMP deal would require the Foreign Investment Review Board’s green light, given the zero threshold for offshore-led deals during the pandemic.

Shareholders will also want to know Ares’ plans for AMP’s large surplus capital balance of about $1.4bn. If equity stakes in other companies and entities are included that balance is higher.

The AMP sales process is occurring while chief executive Francesco De Ferrari works through a three-year turnaround plan and advisers consider buyer interest for parts of the company.

This year has seen AMP lurch through a new controversy after the board promoted Boe Pahari, who had been formally penalised over a sexual harassment incident, to lead AMP Capital.

Mr Pahari has since been demoted.

The scandal — coupled with the exit of AMP Australia boss Alex Wade over lewd conduct — saw former chairman David Murray exit in August.