A gap wider than the Tasman

By BRIAN GAYNOR

AMP, which has 125,000 New Zealand shareholders, held its highly charged annual meeting in Melbourne on Thursday. For four hours and 20 minutes shareholders hammered chairman Stan Wallis with questions on a massive payout to a former chief executive, the acquisition of Australian insurer GIO, a rumoured takeover offer from National Australia Bank (NAB) and the group's slumping share price.

Mr Wallis demonstrated superb skills in controlling the meeting but the new chief executive, Paul Batchelor, has yet to convince shareholders he is the best man for the job. Unless Mr Batchelor can quickly restore the company's profitability and reputation, the best prospect for shareholders is a takeover bid from a large international group.

The first big difference from a New Zealand company meeting was that directors mingled and talked with shareholders for 45 minutes before proceedings opened. Mr Batchelor looked remarkably relaxed, considering the torrid time the Australian media had given him during the week. Most of the business press has been extremely critical of his involvement with the GIO acquisition, the NAB offer and his connection with the failed company Westmex.

After Mr Wallis opened the meeting, he asked each director to give a two to three minute address outlining his or her skills and contribution to AMP. By contrast, most New Zealand directors are seen but not heard.

After long speeches by the chairman and chief executive, shareholders were finally given the opportunity to vent their anger. One of the first to his feet was veteran activist Jack Tilburn who called former chief executive George Trumbull a Yankee gorilla and the rest of the board donkeys and dopes.

Mr Wallis answered Mr Tilburn, and scores of other angry shareholders, in a calm and civilised way. His replies to the main questions are summarised as follows:

George Trumbull was paid $A13.2m ($16.6m) after his resignation as chief executive. AMP did not wish to become involved in drawn-out litigation, and agreed to the sum after it was determined by an independent arbitrator.

AMP's acquisition of GIO was an error of judgement, not the result of poor corporate governance. The board anticipated a loss from GIO's reinsurance business, but last year's writeoff of $1.2 billion was unexpected and unacceptable. This provision was the main contributor to AMP's 1999 loss of $424 million.

Mr Wallis would neither officially confirm nor deny that the board had received a $21 ($26.50) a share offer from NAB. However, he gave the strong impression that an informal offer had been received but it had a large script component and conditions that were unacceptable to the AMP board.

The poor share price performance was mainly attributed to the GIO debacle. Mr Wallis and Mr Batchelor argued that the GIO acquisition would have long-term benefits for the group, and core earnings from other operations were tracking upwards.

Mr Wallis confidently predicted that AMP's share price was worth closer to $30 a share than the pre-meeting price of $14.30. He emphasised that overseas investors were more willing to recognise AMP's true value, and the group was vulnerable to a takeover offer because of its strong market position in Australasia and Britain.

The biggest difference between shareholders on either side of the Tasman is that the Australians are more organised. The Australian Shareholders Association had a strong presence, with members asking well-researched and pertinent questions.

Members of a conservation group asked questions on AMP's policy towards land clearance on its cattle ranch investments. Most shareholders hissed and groaned at them, but Mr Wallis and his fellow directors paid close attention.

The election of directors was another contentious issue. Seven directors have resigned since the beginning of the year, and five existing directors - four of whom were appointed in the past few months - were up for re-election.

Also standing, without board support, was a 30-year-old financial journalist. He had no chance of being elected, but managed to attract nearly 67 million votes. This support indicates the level of discontent among AMP shareholders.

The election of directors highlighted the insignificance of New Zealand in AMP's world. Only Contact Energy has more New Zealand shareholders, yet none of the AMP directors are from this side of the Tasman nor was there any mention of the group's growth prospects in New Zealand.

After the marathon meeting, directors, executives and shareholders stood around and chatted over tea and sandwiches. The mood was subdued but there was a general feeling that AMP's worst days were over and its share price would stage a slow but steady recovery.

While on the topic of AMP, the announcement that AMP NZ Office Trust is going ahead with its 34-storey office block on Auckland's waterfront has not been greeted with enthusiasm by all unit holders.

When the trust was listed in December 1997 it was seen as a property investor owning prime commercial buildings with a high occupancy rate.

Although the prospectus indicated the trust would look at development proposals, an independent report by Richard Ellis stated "we estimate that rentals required to justify new construction of prime office space will average in the region of $340 (lower floors) to $425 (top floor) per square metre."

As the latest shareholder letter from Kiwi Development Trust indicates that the current market rental for prime buildings is in the $177 to $301 square metre range, AMP's new project appears to be inconsistent with the prospectus report.

Kiwi is also predicting a flat rental market over the next few years.

AMP NZ Office Trust's Quay St development highlights the inadequacies of the trust structure. These are:

Unit holders have no say over the appointment of directors and no influence over the decisions of a trust. A trust can proceed with a big development without requiring the approval of unit holders;

AMP is paid a management fee of 0.75 per cent on the gross value of the assets, regardless of the trust's profit performance. Based on a total development cost of $147.4 million, AMP will receive $1.1 million per annum for managing the building regardless of whether it is 50 per cent or 100 per cent leased.

The managers' remuneration package, which is based on asset growth rather than profitability, does not necessarily coincide with the best interests of unit holders.

The preferred situation would have been for AMP to undertake the development and to sell the building to AMP NZ Office Trust when it was finished and fully leased.

Another alternative would have been for AMP to put the new development into a separate trust and give the Office Trust unit holders an option to participate in this new trust. This is the option Kiwi Income Property Trust chose for its Royal & SunAlliance building in Shortland St.

The development will increase the trust's risk profile. Development companies - Kiwi Development Trust and Trans Tasman's Australian Growth Properties are two examples - are normally priced at a bigger discount to net asset backing than property investment groups.

Paul Batchelor told AMP shareholders in Melbourne that one of the group's biggest priorities was to create wealth for its clients. He should pass on this message to his New Zealand operations.

AMP NZ Office Trust is already trading well below its $1 per unit issue price, and the Quay St development could place further downside pressure on its sharemarket performance.

Disclosure of interest: Brian Gaynor is an AMP shareholder.