AMP buoyant on AXA merger

AMP chief executive Craig Dunn insists the growing financial stresses in Europe over the past year have not diminished the appeal of last year's $14.6 billion joint move on rival AXA Asia Pacific.

By InvestSMART · 17 Feb 2012

By InvestSMART ·
17 Feb 2012

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AMP chief executive Craig Dunn insists the growing financial stresses in Europe over the past year have not diminished the appeal of last year's $14.6 billion joint move on rival AXA Asia Pacific.

Nine months into the merger, Mr Dunn said the justification for the deal was stronger than ever.

"Getting an opportunity to merge with AXA that doesn't come along very often," Mr Dunn told The Age.

The structure of the transaction using AMP shares to fund the deal protected shareholders from falling markets. Under the deal, AMP sold AXA's Asian businesses to France's AXA SA.

Mr Dunn said bringing the two Australian wealth managers together would create a more efficient business, while revenue growth would come over time, regardless of uncertain markets.

"You are starting to see value in the short term, but you will also see value longer term, and strategically this business is very different and much stronger than it ever was because of the merger," Mr Dunn said.

He was speaking as AMP posted a net profit of $668 million for the year to December 31. This was down 11 per cent on the previous corresponding period, mostly due to a lower valuation of the company's investment holdings.

However, underlying profit AMP's preferred measure of profitability because it smooths out market volatility rose 19.6 per cent to $909 million.

The underlying result included contributions from the AXA business. Mr Dunn said AXA filled the gaps in AMP's product range. For example, AXA was stronger on platforms that financial advisers use to manage client money, while AMP was a big player in superannuation.

AMP is still aiming to save $140 million as a result of the merger, with savings coming faster than expected.

AMP's final dividend of 14?, down 1? on last year, will be paid on April 5.

Mr Dunn said AMP planned to lower its dividend payout ratio to between 70 and 80 per cent of profits, instead of its present target of 75 and 85 per cent, to top up capital amid tougher regulatory requirements for wealth managers.

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Frequently Asked Questions about this Article…

What was the AMP‑AXA Asia Pacific deal and why did AMP pursue the $14.6 billion merger?

The deal was a joint move to combine AMP with AXA Asia Pacific that AMP valued at about $14.6 billion. AMP CEO Craig Dunn said the merger was a rare strategic opportunity to build a stronger, more efficient Australian wealth manager and to fill gaps in AMP’s product range, so management believed the rationale for the deal remained strong despite market uncertainty.

How was the AMP‑AXA merger funded and did that protect shareholders?

The transaction used AMP shares to help fund the deal. According to AMP, using its own shares in the structure helped protect shareholders from falling markets because it reduced the need for large cash outlays in volatile conditions.

What happened to AXA’s Asian businesses after the merger?

Under the terms reported, AMP sold AXA’s Asian businesses to France’s AXA SA as part of the overall transaction, while integrating the Australian wealth-management parts of the business with AMP.

Has the AMP‑AXA merger shown up in AMP’s financial results?

Yes. AMP reported underlying profit — its preferred measure that smooths market volatility — rose about 19.6% to $909 million, and management said that result included contributions from the AXA business. At the same time, AMP’s statutory net profit for the year fell to $668 million (down roughly 11%), largely because investment holdings were valued lower.

What cost savings or synergies should investors expect from the merger?

AMP is targeting around $140 million of savings from the merger and says those savings are being achieved faster than expected. Management expects the combination of the two businesses to create efficiencies that will support revenue growth over time.

Will the AMP‑AXA merger affect AMP’s dividends and dividend payout policy?

AMP announced a final dividend to be paid on April 5 that was slightly lower than the prior year. Management also said it plans to reduce its target dividend payout ratio to between 70% and 80% of profits (from a previous target of 75%–85%) to bolster capital in response to tougher regulatory requirements for wealth managers.

How does AXA complement AMP’s existing products and adviser tools?

AMP says AXA fills gaps in its product range: AXA was stronger on the investment platforms that financial advisers use to manage client money, while AMP was a major player in superannuation. The complementary strengths are a key reason AMP sees strategic value in the merger.

Should everyday investors worry that European financial stress has reduced the value of the AMP‑AXA merger?

According to AMP’s CEO Craig Dunn, recent financial stresses in Europe have not diminished the appeal or justification for the merger. He has said the deal’s strategic benefits and the way it was structured mean the business is stronger and positioned for value in both the short and long term — though investors should always consider that market conditions can change and assess risk accordingly.