The old AMP’s days now appear numbered
by Karen Maley, af*r.com
February 9, 2021 07:00 AM
Gangs of investment bankers are working around the clock in a last-ditch attempt to consummate a deal for the Los Angeles-based Ares Management Corporation to take over AMP by Thursday, when the local wealth management giant reports its full-year results.Major shareholders expect AMP to report that its various businesses came under intense pressure in 2020, as a result of the pandemic. One said expectations for the group’s profit results were “pretty low”.
The market is waiting to see if AMP chairman Debra Hazelton can finally deliver some good news on the Ares Management takeover. But they retained some hope that the AMP board could be in a position to announce that a deal had been clinched for Ares to acquire AMP.Sources close to the negotiations report that whether a deal is finally clinched by Thursday “will come down to the wire”.“Everyone wants to get an outcome,” one said. “If there isn’t an outcome, it’s not for want of trying.”Indeed, Ares co-founder, chief executive officer and president Michael Arougheti has directly intervened to smooth the process, holding telephone calls with AMP chairman Debra Hazelton and its chief executive, Francesco De Ferrari.Both sides appear to be unanimous that Ares and AMP fit well together, although Ares’ interest is clearly in the AMP Capital business and especially in the highly coveted area of unlisted real assets, such as infrastructure and real estate.As a result, Ares has taken the precaution of lining up Macquarie Group as the preferred partner to acquire AMP’s Australian banking business, AMP Bank.The problem is that Ares, along with everyone else in corporate Australia, knows AMP is haemorrhaging value by the day.AMP has to act before it starts losing really important staff.— Investment bankerThe wealth management giant is losing talent; its investment mandates are coming under pressure; and there’s growing disunity and fractiousness within the organisation.The ongoing value destruction that’s occurring in AMP has led to one of the sticking points in the negotiations: what price Ares should pay for AMP and what portion of this final price should consist of cash, and how much of shares in the US-listed Ares.But there’s also a huge question mark over what to do with AMP’s embattled financial advice business.An inadvertent ‘for sale’ signIn the wake of the Hayne royal commission, AMP set aside $778 million to remediate customers who received shoddy financial advice, or who were charged fees for financial advice they never received.In its negotiations to acquire AMP, Ares has obviously been keen to find some way to protect itself in case remediation costs in AMP’s advice business turn out to be significantly more than anticipated.But there’s also a broader question about whether it is even possible to run a profit-making financial advice business in Australia.Ares co-founder, chief executive officer and president Michael Arougheti. The difficulties confronting the financial planning industry are so daunting that it may be necessary to reconfigure the Ares bid for AMP so that it excludes the financial advice business.Of course, Ares will be acutely aware that the AMP board put itself into an impossible position last September when it announced a major portfolio review, which was tantamount to sticking a ‘for sale’ sign up on all the company’s various businesses.By taking this step, the board set the clock ticking on a sales process, which is inevitably destabilising for AMP executives and staff.The trouble was that although the portfolio review attracted a lot of bidders hoping to pick up some good assets at a cheap price, Ares was the only bidder that offered to buy the entire AMP group.Last November, Ares lobbed a $1.85 a share indicative and non-binding offer, valuing the group’s equity at $6.4 billion. Ares was allowed to start due diligence late last year, and it continued to work on its bid over the summer break.“They haven’t been able to generate any competitive tension, at least so far as anyone can see,” one high-profile investment banker said.“So they’ve gotten into discussions, in the hope that a deal will come. But AMP is so messy. It has so many issues.”Others said the AMP board’s two investment bank advisers, Goldman Sachs and Credit Suisse, had been so diligent in attempting to rustle up more potential bidders that they’d contacted almost every asset manager in the world that might have an interest in acquiring AMP.The problem was that some of the fund managers that had been approached were now trying to woo AMP talent, or else were trying to wrest control of some of AMP’s existing investment mandates.“AMP has to act before it starts losing really important staff, the deal-doers. They’re the people who could be mobile and could be big losses,” one investment banker said.Meanwhile, long-suffering AMP shareholders appear resigned to Ares swallowing up the wealth management giant, albeit at a discounted price.“There’s no evidence that management can run it, or that the board can govern it,” said one major shareholder. “It’s a pretty shocking situation.”Future unclearOne leading chairman said that after AMP’s tumultuous experience last year, which brought about the abrupt resignations of AMP chairman David Murray and director John Fraser, the company’s board and its shareholders would be keen to see Ares’ takeover proposal proceed.“AMP shareholders will want to accept a deal because there’s no alternative,” he said. “The board has not demonstrated any strategic leadership, any sense of direction.“It’s not clear what the future is for AMP. If the company doesn’t have a compelling corporate strategy, it hasn’t got a sustainable business.”He said the AMP share price, which closed on Tuesday at $1.53, indicated a lack of confidence in the company.But, he said, AMP shareholders would become even more nervous if global equity markets were to suffer another stumble.In addition, he said the AMP board would also be anxious to get a deal done.“The board will be afraid of doing the wrong thing, rather than being motivated to do the right thing”, he said.“They’ll be more afraid of being subjected to criticism if they mishandle the situation than focused on what could be made of AMP without a takeover bid.“The departure of Murray is bound to make the board members that survived much more risk-averse.”
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