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“Stupid & Value Destroying”; Investors’ verdict on AMP Limited’s latest move

The Australian Financial Review is reporting that furious institutional investors stewing at AMP’s pathetic share price performance have labelled its plan to sell its life insurance business as “stupid”.

According to the Fairfax Media Limited (ASX: FXJ) owned publication, fund managers at Merlon Capital and Allan Gray are up in arms about the deal and threatening an attempted board spill in retaliation.

We are writing to inform you that we are extremely disappointed with the terms of AMP’s dilutive, under-priced and value destroying divestment of its Australian and New Zealand wealth protection and mature businesses,” Merlon Capital Partners wrote to AMP in a letter posted to its website.

Spare a thought for then AMP’s investor and public relations teams that probably hoped for some calmer waters after sailing through the choppy swell of its Royal Commission roasting that included revelations the group charged dead people fees.

AMP shares are down 52% in 2018 alone and Merlon Capital reports that it owns 25 million shares in AMP worth around $62 million at today’s price of $2.47. It’s looking at huge losses on its investment as of today then.

Merlon continues: “It is simply unfathomable to us the board could consider it in the best interest of shareholders to sell businesses representing 46% of AMP’s recurring earnings before interest at such a low multiple and large discount to already written down embedded values.”

 “Over the years we have unfortunately seen many boards allocate capital poorly, but we cannot recall a transaction as inept as this one.”

AMP today responded to the latest criticisms of its competence by stating that “the majority of net cash proceeds received on settlement of the sale” would be returned to shareholders.

While also outlining cost-out benefits expected to arise from the deal, alternatives considered, and the implications of the sale on AMP’s capital and debt position.

A lot of banks and asset managers in Australia recently have sold their life and general insurance arms over the past few years on the rationale that it would lower the capital intensity of their overall businesses. This is partly in response to new regulations over how much capital different financial institutions must carry in reserve.

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Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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