Spurned offer costs AMP chairman his post

By GILES PARKINSON

Sydney view

Just two weeks ago, AMP chairman Ian Burgess vowed he would not be moved.

"I will not be a scapegoat and I will not allow the AMP board to be a scapegoat for the GIO board," he said in an interview. "We haven't stolen anything, haven't killed anyone, haven't done anything that's wrong in a legal sense."

Indeed he hadn't, but in the end Mr Burgess had to go. Not because of his role in the disastrous GIO takeover or because of the embarrassment of his paternal scolding and sending home of former chief executive George Trumbull.

He had to go because of his decision to refuse an informal takeover from National Australia Bank last October that could have been worth around $21 a share. No documents have been produced to prove that such a bid was ever made.

But so many investment bankers and fund managers were convinced of its existence, and aghast at Mr Burgess' decision to reject it without apparent board consultation, that his position became untenable.

Now, it seems, NAB has flown the coup. Lend Lease admitted last week that it was talking to NAB about a joint venture with its funds management arm, MLC. That rules out the only likely bidder for Australia's biggest funds and insurance group.

Westpac has shown little enthusiasm for expansion through takeovers, CBA has already put its hand up for Colonial and ANZ doesn't have the money or market capitalisation to pull it off.

AMP investors may well be wondering what could have been had Mr Burgess adopted a similar approach to Colonial, whose managing director, Peter Smedley, agreed to a takeover despite earning a nickname of Pac-Man because of his own taste for acquisitions.

Mr Burgess may well have been right in thinking the NAB offer of $21 a share was inadequate. But AMP shares at the time were trading at a mere $14 and it was not a decision he had the right to make alone.

Investment banker Warburgs may well have come up with its own breakup valuation of $22 to $31, but that does little to appease the market now.

AMP shares enjoyed a brief surge early last week after the announcement of Mr Burgess' departure.

But the tying-up of NAB into talks with Lend Lease has left AMP with a share price back below $16 and possibly the biggest group of disappointed shareholders in the world.

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Another pillar of Australia's business community last week made what viewers of British comedy Yes, Minister may recognise as a courageous decision.

Ian Macfarlane, governor of the Reserve Bank of Australia, delivered a widely expected 25-basis-point rise in interest rates, but the manner in which he explained his actions stunned economists and focused the attention of currency speculators around the world.

Mr Macfarlane admitted his decision was motivated not so much by the strength of the economy but by overseas factors, particularly the view by market players that Australia had an easy monetary policy.

And, he added: "... domestic inflation already is noticeably higher that it was in 1998. Hence a weak exchange rate cannot be assumed to be so benign."

He may not have intended it, but Mr Macfarlane has invited the international currency markets to call his bluff. The governor has blinked.

Already this has been tested by the fall in the Australian dollar below US60c for the first time in two years. How low the RBA will allow it to go before intervening on the market or reacting with another rate rise will be interesting to see.

But he needs to tread carefully. The economic data looks strong, but there is troubling evidence that this is a piecemeal and fragile boom.

Any heavy-handed use of the cumbersome levers of monetary policy may find John Howard with an opportunity to repeat the infamous words of his arch-rival Paul Keating, who explained the Government-induced slowdown of the early 1990s as the "recession we had to have."

* Giles Parkinson is deputy editor of the Australian Financial Review.