Personal finance: AMP dismembered

By MARK FRYER


Three days - that's how long AMP shareholders have before the next episode in the long-running soap opera starring their company.

On Tuesday, shareholders gather in Sydney to vote on the company's plan to revive its fortunes by splitting itself in two.

Over the past month or so, shareholders have been deluged with hundreds of pages of paper detailing this fiendishly complicated scheme - and have no doubt already consigned most of it to the recycling bin.

That's not necessarily a bad idea; this is one time when shareholders may not miss out on much if they simply ignore the issue. But if you want some answers, here's what the deal means.

WHO IS AFFECTED?

Only people who own shares in AMP, the Australian-based life insurance and financial services company.

There are about 90,000 shareholders in New Zealand, most of whom were given their shares in 1998 when AMP transformed itself from a mutual society, owned by policy-holders, into a company, owned by shareholders.

If you don't have shares, but have an AMP insurance policy, managed fund, superannuation scheme or any other AMP product, then you're not involved.

WHAT'S THE PROBLEM?

AMP is trying to patch up the damage that followed its attempt to expand beyond Australia and New Zealand, largely by buying several businesses in Britain.

Those businesses were not as rewarding as AMP had hoped, and the problems were compounded when international sharemarkets crashed.

Since then, the need to keep pumping money into the troubled British operations has dragged down AMP's share price.

Now AMP has decided that it is best to cut loose the British side of the business.

WHAT'S THE PLAN?

If shareholders vote yes on Tuesday, AMP will split into two companies.

One of these, which will keep the AMP name, will include the firm's operations in Australia and New Zealand.

The other company will be called HHG and will incorporate the British operations that have caused so many problems.

The split is scheduled to happen on December 15. Shares in the "new" AMP will trade on the New Zealand and Australian sharemarkets, starting on December 18. Shares in HHG will trade on the Australian and London exchanges, from December 23 or thereabouts.

WHAT HAPPENS TO MY SHARES?

Like the company, they split.

So, if you have 500 AMP shares now, after the split you'll have 500 shares in AMP and 500 in HHG.

If that looks as though you're getting something for nothing, you aren't. The 500 "new" AMP shares you'll own after the split aren't the same as the 500 AMP shares you have now, because the new shares won't include the British operations.

Look at it this way, remembering that no one knows what will happen to the share price: if your 500 AMP shares are worth $7 each before the split, afterwards you'll have 500 AMP shares worth - at a guess - $5 each and 500 HHG shares worth $2 each.

CAN I SAY NO?

Only by voting against the deal. With the meeting on Tuesday and proxy forms required by tomorrow if you want to vote without attending, time is against you, although you can vote by fax or online.

Assuming your fellow shareholders vote yes, your only choices are to accept the split or sell your AMP shares.

IS THAT ALL THERE IS?

Nothing is so simple, especially where AMP is concerned.

As well as splitting itself in two, AMP aims to raise another A$1.2 billion ($1.37 billion or so).

It's doing that by way of a "rights offer". That's an offer which gives existing shareholders the right to buy more shares, in proportion to the number they already own.

As well as the Explanatory Memorandum detailing the plan to split AMP, shareholders should have already received a prospectus that gives the details of the rights offer.

To be eligible to buy shares through this offer, you had to be the owner of AMP shares as of October 28.

WHAT'S THE OFFER?

For every AMP share you own, you can buy another 77Ac worth. So, if you have 500 shares, the rights offer means you can put in as much as A$385 (about $439) to buy more shares.

Note that you don't know how many shares you're buying - just how much money you're putting in.

The actual number of shares you get won't be decided until December 16-17, when AMP goes to the big financial institutions and asks them how much they're prepared to pay for shares.

Investors will then get the shares for the price the institutions are prepared to pay, minus a 10 per cent discount.

Any shares you buy through this offer will be shares in the "new" AMP, without the troublesome British bits.

Here's how the sums might work, if you have 500 shares and decide you're prepared to invest another $439 in AMP. If the institutions are prepared to pay $5 for "new" AMP shares, the 10 per cent discount means you'll get them for $4.50. Divide $439 by $4.50 and you end up with about 97 shares to add to the 500 you already own.

This offer happens only if the split goes ahead, and anyone who wants to take part has until Tuesday to get their application form to AMP.

WHY WOULD YOU?

A very good question, given the uncertainties involved.

The only advantage to the rights offer is the opportunity to buy the new AMP shares for 10 per cent less than the institutions are prepared to pay.

AMP's well-known problems mean those institutions are hardly likely to be paying any more than they absolutely have to, so that price could look like a bargain in years to come.

On the negative side, no one likes paying for shares without knowing what the share price is going to be.

Even though you can buy at a 10 per cent discount, there are still plenty of opportunities for bad news to do more damage to AMP's share price; by January 2, when ordinary trading begins for shares issued under the rights offer, the price could have changed markedly from the figure decided on December 16-17.

All of which is likely to be academic for the many AMP investors who have only a few hundred shares; many will decide the numbers are just too small to be worth bothering with.

CAN I DO NOTHING?

Absolutely. There's no obligation to vote on the proposal or take part in the rights offer.

Assuming the carve-up goes ahead, your shares will be split, but you don't have to do anything yourself.

You'll even get some money for doing nothing. If you don't take part in the rights issue, AMP will still pay you something (because you've passed up the right to buy shares, and that right has a value). Don't get your hopes too high; that payment will be 8.2Ac for every share you own. So if you have 500 AMP shares, you'll get A$41 (about $48) for doing absolutely nothing. Try not to spend it all at once.

WHAT ABOUT TAX?

This shouldn't be an issue for most shareholders. Inland Revenue has said that the new HHG shares won't be considered as a dividend, and thus taxable.

WHAT DOES THE FUTURE HOLD?

Many analysts have pondered this question and about the best that can be said is that they are divided.

One hope is that once AMP is freed of its troublesome baggage, it will become more attractive as a takeover target.

If there is a takeover, shareholders should be able to sell out for more than they would otherwise receive.

The National Australia Bank - owner of the BNZ - is widely regarded as the obvious buyer, despite its efforts to cool speculation.

On the negative side, AMP won't have entirely shrugged off its British burden. Even after the split it will still own 15 per cent of HHG and, if that company performs poorly, AMP will suffer.

As for HHG, the worry is that the million or so shareholders who acquired it by default won't be particularly committed owners and will be inclined to sell, pushing down the share price.

Among all the documents sent out by AMP is a statement that HHG plans to offer small shareholders a way to sell their shares more cheaply and conveniently than they could through the market, although more detail on that scheme won't be offered until next year.

Visiting New Zealand this week, AMP chief executive Andrew Mohl implored shareholders not to sell their HHG shares too soon.

* To contact Personal Finance Editor Mark Fryer write to: Weekend Herald, PO Box 32, Auckland. Email: mark_fryer@nzherald.co.nz. Ph: (09) 373-6400 ext 8833. Fax: (09) 373-6423.