With less than four weeks until under-pressure AMP reports its annual earnings, US buyer Ares Management and its potential partners are gearing up for the final takeover furlong.
It’s a complex $6bn-plus transaction — which may not get off the ground — given all the moving pieces and the interlinked nature of AMP’s business units.
But as it stands, Ares and others are keeping the pedal to the metal on finding a way to buy the 172-year-old wealth group.
Earlier this month, The Australian revealed Ares was in active and separate talks with Macquarie Group and at least two regional banks to partner on a $6bn-plus bid for AMP. One of those — Bank of Queensland — is understood to be working with Luminis Partners on a potential tilt for AMP’s banking operations.
UBS is also staying in and around the AMP sale process to ensure that if parties, such as BoQ, need to raise capital to fund a deal, they are on hand.
Macquarie is figuring out how it can get involved with a bid for AMP bank, although given it is a big player in the infrastructure and real estate sectors, Ares would have to get comfortable with its involvement.
Bendigo and Adelaide Bank can’t be ruled out in a tilt for AMP bank, but is viewed as less likely to jump on board such a complex deal.
Ares is also looking at what to do with AMP’s wealth operations, including the investment platform, and financial planners.
That is a challenge in itself given the landscape was up-ended by the Hayne royal commission, AMP continues to compensate customers for poor advice and faces legal action from planners who opposed changes to its buyer of last resort program advice practices.
Ares’s sights are firmly on the jewel in the crown, which is AMP’s capital division. It manages $189bn across real estate, infrastructure and equities. Some in the market ponder whether a partnership approach is also employed for parts of that unit, given it could assist in getting the broader transaction across the line.
AMP reports full-year earnings on February 11, meaning key decisions are required before then so investors get a meaningful update on the sale process.
It continues to be a tough period for the Debra Hazelton-led AMP board, given it hoped to flush out a string of other potential buyers for all or parts of the company. That was true of the real estate arm, but another serious bid for the entire company is yet to emerge.
A non-binding offer by Ares, pitched in October at $1.85 a share in cash and stock, resulted in the AMP board opening the door to a broad auction process. Investors are also jittery about whether a deal will be done, given AMP’s stock closed at $1.58 on Thursday.
AMP’s bank is attractive to parties because it offers second-tier players much-needed scale in a low earnings growth environment. But potential buyers are cognisant that the bulk of AMP’s home loans come from mortgage brokers, often delivering less sticky customers than those attracted to lenders through direct channels.
AMP’s bank is entwined with several of its other divisions, including capital and wealth management. The bank has $17bn in deposits and a loan book of $20.6bn.
The banking division posted operating earnings of $50m for the six months to June 30, 2020, down from $71m in the same period a year earlier. At the group’s interim results, it also outlined a credit loss provision of $24m, after tax, for potential COVID-related mortgage defaults.
AMP is likely to be pushing for a valuation of more than $1bn for the bank, given it had total capital resources of $991m as at June 30.
The next four weeks will be key to deciding the fate of the former financial services powerhouse, but there’s still a chance AMP is left at square one to get on with its own three-year turnaround plan.
If a deal does eventuate, it will mark one of the biggest corporate carve-ups in recent memory.
Westpac moves
Westpac is close to appointing a well-known female board member in coming weeks, after copping some criticism about the gender composition of its board late last year.
The non-executive director appointment is said to be imminent and the candidate is from outside the banking sector. It will also require sign-off by regulators.
After Alison Deans stood down as a non-executive director (following two three-year terms), Nerida Caesar and Margaret Seale are the only remaining women on Westpac’s 10-member board.
That followed former Insurance Australia Group boss Michael Hawker and former Transurban chief Chris Lynch joining the bank’s board in December and September last year respectively.
At Westpac’s annual general meeting last month, chairman John McFarlane addressed the issue of board renewal and diversity, in light of the bank’s compliance scandal and record $1.3bn financial crimes penalty.
“We also commenced the process of board renewal, to bring together the right mix of directors for Westpac. This includes committing to having the board comprise at least 40 per cent female directors. While we are not at our target at the moment, we are well advanced in bringing this to reality and building a strong, seasoned and diverse board,” McFarlane said at the time.
McFarlane and Hawker crossed paths on the board of insurance group Aviva, and the latter is also a former Macquarie board member and Westpac and Citigroup executive.
AMP Price at posting:
$1.59 Sentiment: Hold Disclosure: Held
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