AMP has been forced to strongly defend the valuation and $3.3 billion sale of its life insurance arm to UK group Resolution Life after a Sydney-based fund manager was revealed as leading a group of shareholders critical of the deal and threatening to push for a special shareholder meeting to get rid of the board.
According to a report in the Australian Financial Review, Sydney-based fund manager Merlon Capital Partners sent a letter to the board attacking what it called a “preposterous” and “inept” deal and seeking an explanation on how the sale could be stopped.
“It is simply unfathomable to us the board could consider it in the best interest of shareholders to sell businesses representing 46 percent of AMP’s recurring earnings before interest at such a low multiple and large discount to already written-down embedded values,” Merlon Capital said in the letter to AMP.
“We are prepared to lobby other investors to convene an Extraordinary General Meeting calling for … a board spill if the matters are not adequately addressed within the next week,” the letter dated October 27 said.
Some shareholders have attacked terms and value of the $3.3 billion sale terms as being too low and light on – $1.9 billion in cash with the remaining $1.4 billion left with Resolution Life in the for of preference shares ($300million) in AMP Life, a $600 million in future earnings from the “mature business (estimated at around $50 million a year after tax each year) and $515 million investment in Resolution Life (for a stake of just on 20%) to be invested in other mature life insurance portfolios.
Complicating matters for AMP was the outflow of around $2 billion in funds under management in the September quarter, most of which was a response to the adverse news and commentary about the AMP’s performance so far as its customers are concerned.
Nervous shareholders have wiped around $10 billion from the value of the company so far this year in the wake of the revelations that the company levied fees on dead people’s accounts, charged excessive fees elsewhere, took too long to resolve disputes and allegedly lied and covered up its problems so far as regulators are concerned (who in turn failed to challenge the company).
The CEO, chair and several board members have left AMP in the wake of many of these revelations, preferring to jump ship rather than try and right the wrongs they helped create. In many cases those who left no longer had the standing to do that for the company.
In a statement yesterday morning AMP promised to return to shareholders most of the net cash proceeds from the sale, news that pushed the shares up nearly 4% in early trading.
The shares then eased a touch and then kicked higher in afternoon trading when the wider markets jumped in late trading to close up 6.9% at $2.47.
AMP said it had sold the business because it was no longer able to compete against global competitors with lower cost of capital, greater scale and geographic diversification.
It would have needed to inject significant capital to keep the business growing and would have remained exposed to volatile earnings, AMP said.
With the sale it was able to release capital and gain the certainty of the sale proceeds.
The sale price represented a multiple of about 11 times annualised underlying profit of $305 million and 0.7 times embedded values including Australian tax credits, AMP said in a statement to the ASX before trading yesterday morning.
That was several hours after the AFR broke the story of the emerging shareholder revolt, which was outlined the paper said, in a letter sent to the company last Saturday (so it has had plenty of time to conjure up yesterday’s ASX release).
Commonwealth Bank of Australia on Wednesday said it would sell its global asset management business, Colonial First State, to Japan’s Mitsubishi UFJ Trust and Banking Corp for $4.13 billion. ANZ and NAB have sold their insurance arms as well. The Commonwealth sold its insurance arm, Comminsure to AIA (the Asian operations of its former owner, AIG, the big American insurer).
