Almost one million AMP shareholders are expected to vote on Tuesday to rid the financial services giant of its ill-fated UK acquisitions in a demerger, despite lukewarm support from analysts.
The AMP board believes the company is worth more in two parts than the whole and that this will be reflected in the share prices of the two new companies.
That's music to the ears of shell-shocked shareholders, who have seen their stock fall threefold. They will receive one share in HHG a new company holding the UK operations of AMP for each AMP share held on December 19.
The Australian Shareholders Association is voting for the break-up, with spokesman Michael Perry saying: "After reading the prospectus for the rights issue, you wonder why they expanded overseas in the first place there are so few synergies between the Australian and UK arms."
If the demerger vote succeeds, it will give the green light to AMP's rights offer to shareholders to fund the redemption of the reset preferred securities.
Investors in the rights issue, which closes on Tuesday, are being offered new AMP shares at a 10 per cent discount to the big end of town, the institutions, prompting brokers ABN AMRO Morgans to recommend them.
"If you do not take them up you miss out on a potential, but not guaranteed, profit because they are issued at a discount," adviser and retail strategy manager Rebecca Sullivan said.
"You get 8.2 cents for the value of your rights and you suffer dilution [because of the extra shares issued]. "That value could be 50 cents should the new AMP share price set by institutions be $5, when the shareholders' discount price would be $4.50, although it depends on what the stock trades for on December 18."
But the biggest mum and dad broker, CommSec, is not recommending the rights, taking the 8.2 cents pay-off instead.
"It locks you in, if something further should happen," analyst Peter Horne said.
An exception would be investors in the reset preference shares which are being redeemed, who will be reducing their exposure to AMP, which they might like to keep in a different form.
Scott Marshall of Shaw Stockbroking says investors would be better off putting their money into other insurers, such as AXA or, even better, general insurance companies such as IAG and Promina.
"But if you have the shares you might as well take up the rights and make a few cents on the market," Marshall said.
Shaw expects the institutions will pay in the low $5 area.
Cavil Singh of Godfrey Pembroke advisers thinks it's worth picking up the new 10 per cent discounted AMP share rights stripped of the UK operations.
AMP has a good franchise Australia's biggest network of financial advisers and the task ahead is to repair the damage.
"You would think that you are buying a relatively safe investment in AMP, excluding all the company's HHG problems in the UK," he said.
Only AMP shareholders, not long-suffering income security holders who were mostly former GIO shareholders, will have a vote on Tuesday. But the income security holders may be the only winners from the demerger.
If the courts decide the demerger was a default, AMP will have to buy them out at the issue price of $100 a security. That $1.2 billion payout would be at the expense of AMP shareholders.
Nick Vidale of Deutsche Asset Management said the question was whether most shareholders could find something better.
"It depnds on AMP's prospects the worst seems to be over for the wealth management industry," he said.
What the brokers say
The road ahead
TUESDAY:
Meeting to approve demerger.
Rights offer closes.
DECEMBER 15:
Last day old AMP trades with entitlement to HHG.
DECEMBER 17:
AMP reveals price and how many shares you'll get
for rights issue.
DECEMBER 18:
HHG shares start trading.
ABOUT DECEMBER 23:
D-day. New AMP and HHG shares trade normally.
JANUARY 2:
Rights issue trades as ordinary shares.
MARCH 4:
2003 full-year results.
MARCH 29:
Shares trade ex dividend.
