Amp Nets $1.4bn In Sale To Suncorp

Sydney Morning Herald

Saturday June 16, 2001

Anthony Hughes

AMP yesterday moved to erase the bitter memory of 1998's disastrous $3 billion takeover bid for GIO Australia by selling the bulk of its combined general insurance operations to Queensland's Suncorp-Metway for up to $1.4 billion in cash and securities.

AMP has separately agreed to sell its UK general insurance operations to Credit Suisse subsidiary Churchill Insurance for #80 million ($211 million), while the pending sale of the small New Zealand operations and the release of capital reserves is expected to take total sale proceeds to $1.8 billion.

While AMP is claiming it will exit at or above the assets' book value of $1.6 billion, it has failed to make a clean exit as it willbe accepting shares as well as cash.

It also expects to offset the proceeds with write-offs of goodwill, expenses and tax.

As part of the consideration, AMP will end up with 5 per cent of Suncorp-Metway, creating a potential overhang in Suncorp's shares. The two companies have pledged to forge an alliance to cross-sell products to each other's customers.

Suncorp-Metway, which plans to retain the GIO brand, will pay AMP $999 million in cash and $405 million in Suncorp securities. As a result, AMP will get$250 million worth of shares, $125 million worth of Suncorp bonds and $30 million of options over Suncorp shares (15.15 million exercisable at $16.38 a share between three and five years of the date of issue).

The profit impact for AMP's full-year result would be neutral, said AMP's managing director, Mr Paul Batchelor. One analyst said the sale price was better than expected but did little to improve the valuation of AMP's shares until the funds were redeployed to assets with higher returns.

AMP shares dipped 8c to $21.20 after a strong run up on Thursday on rumours of the deal, while Suncorp remained suspended at $13.98 while it finalised a $550 million placement to institutional investors. Suncorp will launch a hybrid equity issue separately.

The sale coincided with the third anniversary of AMP's sharemarket listing, but also underscores then-managing director Mr George Trumbull's strategic error of purchasing GIO.

Suncorp's chief executive, Mr Steve Jones, said there was little overlap between the two operations, minimising staff losses. But savings on operating and claims costs would generate $80 million-plus in savings within three years.

The acquisition, marking Suncorp's biggest leap yet outside its home State, would be earnings neutral in year one but add 4 per cent to earnings per share in year two and 8 per cent in year three by which time it would be generating a much improved return on equity of 14 per cent.

Suncorp-Metway plans to buy AMP's shareholdings in insurance joint ventures with RACQ in Queensland and RAA in South Australia for $135 million, though NRMA will be ready to pounce should anti-competition concerns prevent Suncorp from expanding its market share in Queensland.

The Australian Competition and Consumer Commission said it was yet to examine the deal. Its consideration would depend on defining the insurance market as a State, eastern seaboard or national market, a spokeswoman said.

Suncorp has more than 50 per cent of the Queensland market in compulsory third party insurance, but nationwide the combined entities' market share will be 19 per cent of CTP.

With almost $2 billion in annual gross premiums, Suncorp will become the equal second biggest general insurer (with Royal & Sun Alliance) in Australia, trailing only NRMA.

RACQ chief executive Mr Alan Terry said he had yet to have detailed talks with Suncorp-Metway. ``Our clear objective is to ensure RACQ members and policyholders are well looked after," he said.

Still in the firing line Page 48

© 2001 Sydney Morning Herald

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