AMP (ASX:AMP) share price on watch following $500m divestment

AMP is divesting its stake in Resolution Life Australasia…

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The AMP Ltd (ASX: AMP) share price will be on watch on Wednesday morning.

This follows the release of an announcement by the financial services company this morning.

Why is the AMP share price on watch?

Investors may want to keep an eye on the AMP share price today after it made a divestment announcement.

According to the release, the company has agreed to divest its 19.13% equity interest in Resolution Life Australasia (RLA) for a consideration of $524 million to Resolution Life Group.

The sale of the RLA holding will complete AMP’s exit from its former life insurance and mature business, AMP Life, which it sold to Resolution Life in 2020 for a total consideration of $3 billion.

The release notes that the divestment has been agreed ahead of the expiry of the 18-month standstill period agreed as part of the 2020 sale. It values the RLA stake at its carrying value in AMP’s accounts at 30 June 2021.

However, as part of the divestment agreement, AMP and RLA have agreed to settle a number of post-completion adjustments and certain claims between the parties. This has resulted in a net payment of $141 million to RLA from AMP.

AMP had partly provisioned for these items, but following the acceleration of this settlement will record an additional one-off expense of approximately $65 million in FY 2021.

Nevertheless, management notes that the divestment will strengthen AMP’s available capital by approximately $459 million. This provides further flexibility ahead of its planned demerger of AMP Capital’s Private Markets business.

AMP’s Chief Executive, Alexis George, commented: “This divestment brings to a close our long and proud involvement in life insurance in Australia and New Zealand. It enables us to realise capital to further strengthen our balance sheet ahead of our demerger and continue supporting our businesses.”

“The separation of our businesses is progressing well and will continue until mid-next year as planned. We will continue to provide transitional services to RLA, as agreed, and will have a shared customer and adviser connection into the future,” she concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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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