Analysts at UBS Bank say that breaking up AMP Ltd (ASX: AMP) into separate businesses will not generate any increased value for shareholders.
This comes after AMP advised it was undergoing a portfolio review, following a takeover bid by American company Ares Management in November.
The AMP share price is currently trading at $1.735, which is below Ares’ offer price of $1.85.
What did the analysts at UBS say?
Broker UBS said breaking up the financial services company was a bad idea and would not generate increased shareholder value. UBS analysts, in their presentation to clients this morning, said that “stranded costs and capital dissynergies will likely dilute any higher value asset sales”.
Regarding AMP’s portfolio review, the broker said “the sum-of-the-parts valuation for many financial services companies is worth less than the sum of the whole, as demonstrated in recent transactions across financial services, with significant separation costs and capital dis-synergies often underestimated”.
The broker gave the example of the $3 billion sale of AMP Life to Resolution Life back in July. According to the analysts, that sale was years in the making before it was finally agreed, but “disappointed when it came to capital releases and capital management”.
What’s been happening at AMP?
AMP has experienced a difficult 2020, which included a sexual harrassment lawsuit brought by a former employee. That lawsuit ended in a parliamentary inquiry with chief executive Francesco De Ferrari appearing for questioning in September, and insisting there was no systemic cultural problem at AMP.
AMP’s reputation as one of Australia’s oldest and most trusted wealth managers also took a potentially fatal hit during the 2018 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The subsequent appointment of Mr De Ferrari shortly after the conclusion of that commission was supposed to herald a turnaround for the company.
However, AMP seemed to raise the white flag earlier this year when it declared all parts of its business open for a possible sale.
This has atttracted multiple potential buyers, with Ares Management making the first move in November by offering a cash and scrip offer of $1.85.
About the AMP share price
The AMP share price started the year at $1.92, before plunging to $1.08 in March – its 52-week low.
The share price jumped and has since supported itself at the current level when the Ares’ offer was announced.
The company commands a market cap of $5.96 billion.
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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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