The Challenger Ltd (ASX: CGF) share price will be on watch this morning, and possibly this week, on talk that it is looking at buying one of the AMP Limited (ASX: AMP) businesses.
What’s going on with Challenger and AMP?
AMP is currently facing some difficulties in the wake of the financial services royal commission. It’s currently looking to sell some of the AMP Capital business to Ares Management.
That part of the AMP Capital business is for infrastructure equity and infrastructure debt, real estate and other minority investments. Ares would buy a 60% stake for $1.35 billion, whilst AMP keeps the other 40% worth $0.9 billion.
In the update that AMP gave, it said it would retain ownership of AMP Capital’s public markets businesses and the strategies would continue. The multi-asset group would be transformed and transferred to AMP Australia, whilst actively exploring the sale or partnership opportunities for the global equities and fixed income (GEFI) business.
It’s this GEFI business that the Australian Financial Review’s Street Talk has reported that Challenger is interested in.
Apparently Challenger CEO Richard Howes and Challenger have been “running the numbers” on AMP Capital’s public markets business and adding it to its existing business.
The AFR pointed out that AMP Capital’s public markets business was looking after $135 billion of assets at the end of 2020. The newspaper’s sources say that Challenger has been sniffing for months, though a deal isn’t anywhere near close.
How much would this cost Challenger? The AFR’s unnamed analysts believe that the remaining public markets business could be worth between $500 million to $1 billion.
What to make of this
I’m no expert on fixed income businesses, but it seems like it would be a complementary fit for Challenger considering it already has large fixed income and equity management divisions. Scale is useful for fund managers because a similar number of team members can manage a larger amount of funds under management (FUM) – fund management businesses usually become more profitable per dollar of revenue as they get bigger.
It also sounds like a good move by AMP – I’m sure shareholders would like the business to actually reflect how much some of its underlying businesses are really worth.
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