Once great, now bait

Look out. Here comes another attack. And another. Life at AMP these days means getting used to siege conditions. The two new directors attending their first board meeting this week were presumably given hard hats at the door by the almost as new chairman, Peter Willcox. These assaults aren't going to stop.

For now, the hostilities are aimed more at the exposed AMP flanks the various AMP property trusts in particular rather than direct hits to the solar plexus. But for a company preoccupied with providing life support for its ailing UK arm and struggling to protect its Australian business from an unrelenting market, the attacks are another painful reminder of the vulnerability of the once impregnable AMP.

Fraying edges tend to unravel, pulling at the centre.

``The effect is more in terms of image than the bottom line," says one market player. ``But from an image point of view, vulnerability in one area always suggests they may be vulnerable elsewhere."

In normal circumstances, this would be even more significant, given the imminent expiry of the restrictions that effectively limit individual shareholdings in AMP to 5 per cent. They disappear on June 15, exactly five years after the demutualisation that once seemed such a clever idea.

But, of course, these are not normal circumstances. In fact, AMP's biggest practical protection from the likelihood of a full-scale assault is actually a negative one. No one seems to want to take a chance on a bid right now. It's not just the shocking state of the markets and the global sense of gloom and doom or even the fact that the usual suspects, the Australian banks, have their hands full.

Any potential interest also seems to have been squashed by the dire problems of the UK business and the fear that there could be worse still lurking in the background. Add to that unease a desperate AMP choosing to limit the prospects for further damage in the UK by using derivatives. The flaw is that hedging its bets comes at the cost of also limiting the benefits to AMP should the markets finally turn up. It all spells trouble. In this climate, who wants to know?

The alternative is what is now occurring pursuing the extremities in the confidence that AMP has neither the will nor the ability to defend them any longer and waiting to see how things play out more generally.

It's a reasonable play. But AMP, keenly aware of the symbolism of all of this, doesn't see that end as inevitable at all and is preparing to fight. The question is how hard?

Despite all the flak flying, CEO Andrew Mohl has a calm manner, a determined approach and the confidence that he and his team are doing the best they can for AMP in a very tough world. The $896 million loss for last year announced in February is hopefully the nadir for AMP, although Mohl has quickly learned the hard way not to make predictions in this market. Has the share price finally bottomed? Who can tell?

At least the semi-hysterical reaction to Mohl's now infamous comments that AMP was fighting for ``survival" has now calmed down to an acceptance that he was talking about brand and image rather than solvency.

But although so much attention has been focused on the woes of the UK business, there are also questions about the robustness of AMP's Australian financial planning business the key to the bulk of its revenue and the fall in operating margins.

``A disappointing aspect of the recent result was the decline in the earnings contribution from AMP's Australian business," says Alliance Capital Management research analyst Neil Margolis.

Another analyst says: ``AFS [AMP Financial Services], which was the one part of the business that was unscathed, showed a slowdown. No one was expecting it, not a single sell-side broker. It was the biggest single disappointment."

Some others closely involved in the market also suggest that relative to other big investment funds, AMP financial planning is losing market share and not attracting the flow of new money it should.

In contrast, the company maintains that this is all to do with the general state of the market rather than any particular problem with AFS, which is actually doing relatively well in comparison with its domestic and international rivals. Plenty of other analysts are also sanguine, saying the Australian results are about as expected in grim conditions.

But it means the pressure on management is remorseless and there is a limit to the scope of AMP's resistance when it comes to protecting attractive ``targets of opportunity" from others.

In fact, some of these assaults are welcome enough. AMP Life, for example, owns Australia's biggest landowner and cattle group, Stanbroke Pastoral Co, along with AMP Henderson as its manager. But despite the sentimental attachment to Stanbroke, this rural empire is considered a natural business for AMP to exit if it can get a decent price. It's unlikely that most AMP policyholders and shareholders would even know of their links to much of Australia's cattle heritage.

It means AMP is happy to listen to suggestions that Kerry Packer, Peter Holmes a Court and others may want to purchase Stanbroke and its chain of cattle breeding properties and beef processing operations in the Northern Territory and Queensland. It has opened a tender this week to respond to what it calls ``significant interest".

``This is totally unconnected with the broader range of issues going on in AMP," says Jack Rich, managing director of AMP Henderson.

Figuring out what to do with the sudden interest in AMP property trusts is, however, very much connected with AMP's broader range of interests and timed to exploit its many other problems. It is also much more difficult to resolve.

In part, it reflects a wider revolution in the listed property trusts sector. This sudden fashion for consolidation reflects their popularity among investors frantically looking for some good news and now buying it in of all places shopping centres.

The main reason is that the supply of suitable land for shopping centres is strictly limited, while the enthusiasm of consumers for consuming doesn't yet seem to be. That means the basic law of supply and demand is becoming ever more obvious witness the high price Westfield was willing to pay for the Centrepoint complex in central Sydney recently.

The precise picture involving AMP is far less obvious, partly because of the complexity of the structure involved and the fact that it has been getting out of direct property holdings itself over the last several years, largely in favour of selling the best properties into AMP managed trusts. But in the last few weeks, the manoeuvring has become a lot sharper.

The first real sign of predators stirring came on March 18, when one of the newer and rapidly expanding breed of specialist owner managers, Centro Property Group, made a hostile $1.3 billion for control of AMP Shopping Centre Trust in which it now has a stake of 19.9 per cent.

The trust holds a group of nine shopping centres, with AMP Life owning about 19 per cent of it and AMP Henderson, its funds management business, a further 2.5 per cent. AMP Life is run separately and solely for the benefit of its own policyholders but it shares several board members with AMP, including Mohl as chairman.

But the trust's other attraction for AMP is that it pays AMP Henderson a handy fee to manage the shopping centres.

Groups like Centro argue with considerable success that a pure property player can do it all more cheaply because they don't have to pay an external manager AMP Henderson to look after the shopping centres.

Nor did it take long for the gorilla of the shopping centre market, Westfield, to get into the act as well, also buying up 19.9 per cent of the AMP trust. The catch-all description is that it is building a ``strategic `` stake which no doubt means it is ready and waiting to deal too.

Westfield, of course, has its own complex management fee structure, with Westfield Trust paying Westfield Holdings to manage its shopping centres. That structure attracts some criticism too but Westfield has the advantage of being considerably more powerful and more successful than AMP. Certainly the investors in Westfield Holdings are extremely happy with the results, particularly in contrast with those at AMP.

``AMP might be competent as a manager but there are others, like Westfield and Centro, who have been proven to be more competent," says one institutional investor. ``The situation is that you've got to question the track record and ability of AMP as an asset manager. Shopping centres are not just simple things to run. I question their ability to be leading edge value managers in property."

Nor is it only the shopping centre trust that is suddenly a problem. Another AMP property trust the Diversified Trust which is slightly larger even than the Shopping Centre Trust is under assault from another property specialist, Stockland. Stockland is now up to 17 per cent of the trust and has just raised money, presumably to buy more. The smaller AMP industrial and office trusts are likely to be stalked too, with plenty in the market suggesting they will fall to others' control eventually.

The response from AMP so far has been rather contradictory, reflecting the competing interests of the AMP businesses involved.

AMP Life, for example, has to take seriously its duty to look after its own policyholders and get the best deal for them, whoever is offering it.

Mohl and the other two main board members stand aside from these property trust discussions although this still leaves two AMP executives as the three remaining non-executive directors at AMP Life making the decisions. Yet any preference for Centro would clearly weigh against AMP Henderson's management fees and its own duty to protect its unitholders.

All the various businesses have their own teams of legal and business advisers to help ensure their independence. But at the end of what is likely to be a very long day, their decisions will all reflect on Mohl and the team at AMP head office.

A common argument in the market is that in the overall weighting of AMP Henderson's business, the loss of the odd $20 million in management revenue from the trust is hardly crippling to a business that earned nearly $900 million last year. Indeed, the management fees to Henderson from all four AMP property trusts amounts to less than $50 million.

The general belief is that it is certainly not worth shelling out a lot more scarce cash to defend them, given the much bigger problems AMP needs to address right now.

But Mohl and the others know they can't just afford to roll over and that it is vital to their own brand and position in the market that they handle this well.

The first official reaction has been to suggest that Centro could find it hard to get management control of five of the nine shopping centres. That's supposedly due to a pre-emptive agreements not previously known about with other co-owners. These co-owners happen to be other AMP entities which, according to this theory, could force the trust to sell these assets to them should ownership of the trust change, meaning they could exercise purchase rights at market value.

``That was a dirty trick," says an institutional investor, ``but desperate times call for desperate measures."

Or perhaps a giant bluff in a tough poker game. Perhaps the threat of court proceedings will mean a better price from those circling, trying to pick off the assets. Perhaps it will mean a withdrawal. AMP is settling in for a long hand. But the impact is yet another distraction for AMP just when it doesn't need it.

``AMP are in a very tricky position in terms of trying to get value for their businesses but at the same time ensure the best interests of their investors are served," says Andrew Parsons, head of Lend Lease property securities.

Unfortunately, it also reminds everyone of AMP's woes with disclosure. Only last week AMP handed over $100,000 to the Australian Securities and Investments Commission to fund a corporate governance training program as penance for the lack of proper disclosure last year when UK authorities demanded it inject more money into the UK. Post the Paul Batchelor era, AMP is supposed to stand for a much more open way of dealing with the market.

This certainly made it more difficult for Mohl to maintain as he has that he cannot give more details of the derivatives put in place to protect AMP from further falls in the UK stockmarket.

``First of all, I think it was great that they told the market that they were doing something to hedge downside risk and to tell that they were capping their equity market upside," said Constellation Capital Management investment researcher Peter Vann.

``But unfortunately they didn't release sufficient information to tell the market the nature of the protection and the levels that the capping may be expected to kick in.

``We appreciate that the derivative programs may be dynamic and change over time with market conditions, however some further information would be greatly appreciated."

AMP is aware of the criticism but confident it has chosen the best option available.

Its nervous shareholders will suspend judgement.

The trouble is that it all contributes to the idea of a once mighty powerhouse slowly being stripped of its bulk either by design or by force of circumstances.

That's not necessarily a bad thing assuming the centre holds. But hold it must. Bring your own hard hat.