AMP Limited (ASX: AMP) has announced the sale of AMP Life to Resolution Life is now “highly unlikely to proceed”, undermining a key part of AMP’s strategy and affecting their dividend.
AMP is a diversified financial services company which has its primary operations in financial advice, including financial planning and wealth management. A big part of its business is licensing other planning groups to provide advice. AMP also has capabilities in investing (AMP Capital), banking and insurance. The following video explains how dividends are paid:
AMP Life is the name given to AMP’s Australian and New Zealand wealth protection and mature businesses.
Around nine months ago, AMP announced it would sell AMP Life to Resolution Life for a total of $3.3 billion. The $3.3 billion consisted of $1.9 billion in cash, $300 million in AMP Life preference shares and $1.1 billion in non-cash considerations.
At the time of the announcement, AMP Acting CEO Mike Wilkins said, “For shareholders, the agreement with Resolution Life and our exit from wealth protection and mature delivers important strategic benefits. It substantially simplifies our portfolio, delivers certainty and frees up capital.”
The Reserve Bank of New Zealand (RBNZ) informed Resolution Life it will not consider the change of control application unless Resolution Life agreed to have separate, ringfenced assets held in New Zealand for the benefit of New Zealand policyholders.
According to the announcement, this is inconsistent with the current branch structure and changing the structure would impact the commercial return of the sale of AMP Life.
As such, AMP has announced that the transaction is “unlikely to proceed in its current form” and they will now work on another solution. If no suitable deal can be made, AMP will retain the AMP Life business.
AMP announced that, given the uncertainty around the AMP Life transaction, they will not pay an interim dividend for 1H19.
This is sure to leave many investors unhappy, and with the $3.3 billion transaction now on the rocks, AMP shares will likely be heading lower today.
AMP is a business that I think has a long road to recovery and I wouldn’t be investing with today’s level of uncertainty.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.