Mohl ponders the price of friendship

While Westfield and AMP have extensive business relationships and share ownership of a number of major shopping centres, the Lowys aren't managing a benevolent institution.

Nor, despite their assertion that the holding in the AMP-managed vehicle will be distribution-accretive for Westfield Trust, are they passive investors. Tellingly, Westfield Trust said it regarded the investment as ``a strategic holding".

Westfield may be the closest to a white knight AMP could conceive of, but it will be acting purely in its own interests which may or may not be confined to the shopping centre trust and may or may not coincide with AMP's best interests.

The Westfield buying at $1.80 per unit came after Centro Properties bought 19.9 per cent of the trust and launched a hostile $1.3 billion cash and scrip bid last week. The bid three Centro stapled securities and 27.3c cash for every seven AMP Shopping Trust units is worth about $1.66 a unit.

The Centro offer is in trouble. It doesn't have the firepower to compete with Westfield if Westfield is determined to stymie it or outbid it.

Westfield has obviously bought into the fray to either block Centro or at least participate in any carve-up of the AMP trust, which owns a collection of regional shopping centres.

With AMP itself controlling 21 per cent of the trust, held by its statutory funds, it would be difficult for Centro's offer to succeed if AMP and Westfield joined forces. The bid has a 50.1 per cent minimum acceptance condition.

As the third player to join the contest, Westfield would almost inevitably present itself as friendly to AMP, which desperately needs some well-heeled friends at the moment. The price of that friendship, however, may be high.

AMP shareholders' exposure to the trust is through ownership of AMP Henderson, which manages the trust and collected nearly $17 million of fee income from it last year.

Ultimate ownership of the AMP stake in the trust lies with AMP policyholders, who also have some direct exposures to properties within the trust. AMP clearly also has a responsibility to the trust's unitholders.

AMP will want to protect the interests of its shareholders and will also be conscious that its management of a range of listed vehicles may be threatened and its fee income streams undermined if Centro succeeds.

AMP has been caught in a position of great potential conflict, given the tension between the shareholder imperative of protecting the value of the management rights, AMP's broader strategic position in managing listed property trusts, and the need to act in the policyholders' interests.

Centro's bid is at an 18 per cent premium to the trust's asset backing. If Westfield were to make an offer at $1.80 a unit the premium would be about 30 per cent.

It would be difficult to argue that it was in either the unitholders or policyholders' interests to reject a cash bid of that order. It would also undermine AMP's credibility as an investment manager.

It is conceivable that Westfield will simply join with AMP to block the Centro bid, which if successful would vault Centro up into the ranks of the major shopping centre managers to number two, behind Westfield.

Westfield making a bid at a full cash price might be considered an act of friendship if the alternative is that the trust could fall to Centro, although Westfield's ability to make an offer isn't unquestioned, given that there could be opposition from the ACCC.

Such a bid would give AMP some leverage in any discussions and might even attract interest from yet another player. If Centro's holding becomes available and the support of AMP's stake in the trust the decisive factor in any confrontation with Westfield, interest from another player could give AMP more influence.

Even if Centro can be seen off, and whether or not Westfield or someone else bids for the AMP trust, AMP has a real problem because Centro has highlighted its vulnerability.

Apart from the shopping centre trust, AMP manages a diversified property trust, an office trust and an industrial property trust. It is quite likely that it will find its position as manager in those trusts under attack from the Stocklands, Mirvacs and Centros who are trying to pursue consolidation strategies.

It cost the CBA and Gandel group $178 million of shareholder capital to fight off the attempt by Mirvac to gatecrash the merging of some property interests last year.

AMP doesn't have the surplus capital resources to devote to that kind of strategy but can't afford to be forced out of the listed property sector. The damage to its credibility as a fund manager and its brand would go well beyond the loss of the fee income streams.

If it can't decisively repel boarders at the shopping centre trust, or at least emerge with a face-saving compromise, it is almost inevitable that its other listed property trusts will be targeted and its property investment strategy, and the income that flows to AMP Henderson, will be shredded.

AMP is wounded and vulnerable and has limited capacity to defend itself and the market and its competitors now know that. The outcome of the battle for the shopping centre trust could be of enormous significance for AMP and the sector.

bartho@smh.com.au