AMP chairman David Murray has defended the $3.3 billion sale of the firm’s life insurance arm, despite critics slamming it as a “blatant destruction of shareholder value”.
Mr Murray, who was appointed in May to lead the board and clean up the damage caused by the banking royal commission, told The Business he would not do anything differently with the deal, despite it sending AMP’s share price plunging nearly 25 per cent in a single session last week.
Some institutional shareholders of AMP have slammed the transaction, including fund manager Merlon Capital Partners, which owns 25 million shares.
“This is up there with the single worst decision that I’ve seen in my career and I’ve had similar feedback from quite a number of other fund managers,” Merlon portfolio manager Hamish Carlisle said.
In a letter to AMP’s board, Merlon described the sale as “dilutive, under-priced and value destroying” and challenged the financial figures used to justify the deal.
“You’ve got a business here that by its own calculation had assets valued at approximately $5 billion that they’ve sold for net proceeds of $3 billion, so there’s a $2 billion wipe-out of shareholder value,” Mr Carlisle told The Business.
“You could own a business today, you could go and get it formally valued by an accredited valuer, and then wonder why it didn’t sell precisely at that price, that’s not how it works,” David Murray hit back, saying recent history showed the business would be a drain on the company.
“Can you explain why we should keep doing that when there’s been significant structural changes in this industry — permanent structural changes — that leave us and Australian-owned insurance companies uncompetitive versus the rest of the world?”
Mr Murray defended the decision not to take the deal to a shareholder vote, saying it was “completely unrealistic” in the context of the negotiations.
“The shareholders appoint the board to make those decisions, and the board believes this is definitely in the long-term interests of AMP shareholders,” he said.
Merlon’s letter demanded a series of additional disclosures by the board, and in announcement to the ASX today, AMP laid out further details of its strategic rationale for the sale.
‘A series of unfortunate events’
Merlon Capital’s Hamish Carlisle also questioned the timing of the sale, which comes during a broader push across the industry to simplify businesses amid the scrutiny of the royal commission.
“These assets that they’ve sold have absolutely nothing to do with anything that’s happened in the royal commission,” he said.
“Clearly the decks have been cleared in the face of the new chief executive and to run a cleaner operation but even that is inexcusable.”
David Murray denied Kenneth Hayne’s inquiry was an impetus for the sale, which comes ahead of the arrival of new chief executive Francesco De Ferrari in December.
“This transaction is about the prudent use of capital,” he said.
“It would’ve been easier for me in some respects to say, ‘Well, let’s put this transaction on hold altogether, get the new chief executive in with a plan’, but the alternative was to get this transaction done, it’s absolutely compelling, and give the new chief executive some clear air.”
However, the board may be longing for some clean air of its own, with the potential for more agitation ahead.
“If the [requests made in our letter] are not adequately resolved, we will lobby other shareholders to call an [extraordinary general meeting] and as part of that process, we may exercise our rights, alongside other shareholders if we go down this path, to spill the board,” Mr Carlisle said.
Despite his defence of the deal, Mr Murray said he did not blame shareholders voicing their concerns.
“The company has been through a series of unfortunate events and I would not blame any shareholder feeling somewhat sceptical about what the company says it intends to do,” he said.
AMP’s share price rose on Wednesday, closing nearly 7 per cent higher at $2.47, regaining a portion of last week’s sharp sell-off.