The AMP Ltd (ASX: AMP) share price is under a cloud as a broker warns that it's selling assets too cheaply.
The news puts AMP shareholders between a rock and a hard place, and I'll explain why in a moment.
It was the analysts at Macquarie Group Ltd (ASX: MQG) that was sounding the alarm when it looked at the proposed joint venture (JV) between AMP and Ares Management Corp Class A (NYSE: ARES).
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AMP's crown jewels going for a song
The broker found that AMP may be selling a majority stake in its prized private market business at around a whopping 25% discount to Ares!
The business, which forms part of the AMP Capital division, is estimated to generate 91% of divisional earnings before interest and tax (EBIT), according to Macquarie.
If so, the private market unit is being priced on a trailing EBIT multiple of around 16.9 times. This is substantially higher than the multiple of around 12.7 times proposed for the joint venture.
AMP's turn to reject Ares?
This isn't an exact science. The difference may be due to the ongoing deterioration in AMP Capital with institutions pulling their mandates.
But even accounting for this risk, Macquarie believes a very material discount exists.
"On our numbers, we do not see how AMP could agree to the deal in the form disclosed to the market," said Macquarie.
"Should the jewel in the AMP crown be sold at such a steep discount, it would signal an even worse underlying state of the Group (and AMP Capital division) than we are forecasting."
Shareholders' dilemma clouds the AMP share price
But herein lies the dilemma for shareholders. AMP needs the JV to proceed to unlock value in the asset after Ares walked away from an earlier proposal to buy the entire group.
The AMP share price slumped the US suitor turned its back and AMP failed to attract any other interested parties.
This puts Ares in the box seat to get their hands on what many call the best bits of AMP at a fire sale price.
Are there any long-term investors left in AMP?
While Macquarie is urging AMP to break off the engagement, shareholders might be less willing to do so.
The AMP share price is sure to tumble if management pulls the plug on the $2.3 billion JV, which would lead to a $1.6 billion cash payoff for the beleaguered wealth manager.
On the other hand, if AMP elected to call off the deal and work on turning around the AMP Capital business, the AMP share price could eventually recover.
But that will take quite a while. For most investors, that might be too long a wait.
