Australia's AMP Ltd on Wednesday defended the valuation and sale of its life insurance arm after a large shareholder threatened to campaign for a board spill over the price it agreed for the business last week.
The country's largest-listed wealth manager promised to return to shareholders most of the net cash proceeds from the sale, sending its shares up 6.93 percent on Monday, partly recovering some of the 30 percent fall in the days following its agreement to sell the unit for A$1.9 billion ($1.35 billion) in cash plus equity stakes.
Once one of Australia's blue chip companies, AMP has been hammered by capital outflows and fleeing shareholders after a national inquiry into abuses in the banking and insurance industries found deep flaws in its governance and ethics.
The inquiry has already triggered the departure of its CEO, chairman and several board members.
Last week, its stock plunged to record lows after it said it would sell its life insurance arm to British Resolution Life at almost a fifth below book value. Analysts and shareholders have challenged that valuation, believing the sale discount is likely to be closer to 40 percent.
In a statement to the exchange on Wednesday, AMP said it had sold the business due to declining returns and because it was no longer able to compete against global competitors.
The sale price represented a multiple of about 11 times annualized underlying profit of A$305 million and 0.7 times embedded values including Australian tax credits, it said in a statement to the stock exchange.
Embedded value is a measure of future cash flows in life insurance.
'STOP THE DEAL'
Sydney-based fund manager Merlon Capital Partners, holder of close to one percent of AMP shares, sent a letter to the board at the weekend attacking what it called a "preposterous" and "inept" deal, and seeking an explanation on how the sale could be stopped.
"We are prepared to lobby other investors to convene an Extraordinary General Meeting calling for ... a board spill if the matters are not adequately addressed within the next week," the letter dated Oct. 27 said.
Under Australian corporate rules, shareholders controlling at least five percent of a company can call an extraordinary meeting to vote on a special resolution such as a board spill, forcing directors to seek re-election.
"It is simply unfathomable to us the board could consider it in the best interest of shareholders to sell businesses representing 46 per cent of AMP's recurring earnings before interest at such a low multiple and large discount to already written-down embedded values," Merlon Capital said in the letter.
Hamish Carlisle, principal at Merlon, welcomed AMP's disclosures but said the company was yet to address whether the deal could be stopped.
"We want to know every way that it could be exited and whether any of those could be exercised by the board in line with the market's view of the deal," he said.
A second institutional shareholder, Simon Mawhinney of Allan Gray Funds, told Reuters his fund would back efforts to stop the deal.