Soul Pattinson in $3 billion bid for Perpetual as split on the cards

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Fund manager Perpetual has received a $3 billion takeover bid from its biggest shareholder as it weighs whether to dissolve its three-pronged corporate structure and focus on its flagship asset management business to boost shareholder returns.

On Wednesday, diversified investment house Washington H. Soul Pattinson (WHSP) announced to the ASX it had lobbed a non-binding, indicative offer on November 21 that would bring its 9.9 per cent stake in Perpetual to 100 per cent.

Rob Adams, chief executive of Perpetual, which has been under pressure to generate value for investors.Credit: Brook Mitchell

WHSP’s proposal values Perpetual shares at $27 each, nearly 29 per cent above the fund manager’s closing share price in the week before the offer was made. The bid is about 14 per cent higher than Perpetual’s closing share price on Wednesday, just before WSHP’s announcement.

The offer comes as Perpetual said in a statement to the ASX earlier the same day that it would explore the benefits of splitting off its corporate trust and wealth management divisions to create a more focused, pure-play asset management business.

“The review is being progressed by Perpetual’s board of directors and is in line with the company’s regular evaluation of opportunities to create value for shareholders,” it said.

At its annual general meeting on October 19, Perpetual told investors its growth strategy had provided the company with “three quality businesses of scale, which enabled the board to assess additional strategic options that may arise, to maximise value for our shareholders”, it said in the announcement.

WHSP said in its announcement that it welcomed Perpetual’s exploration of a potential separation of its corporate trust and wealth management businesses from its asset management business.

Under WHSP’s proposal, Perpetual shareholders would receive WHSP shares in exchange for the Perpetual’s wealth management and corporate trust businesses, while holding on to shares in a separately listed Perpetual asset management business.

“A singular management focus on Perpetual Asset Management positions the business to deliver growth in the global asset management sector, and to benefit from annualised synergies of the Pendal integration without the burden of leverage,” WHSP said in its announcement.

Morgan Stanley analyst Andrei Stadnik said Perpetual’s review could contribute to a roughly 25 per cent upside for the stock. “The corporate trust division in particular has attracted interest from private equity in the past,” he said. “We think the asset manager may be undervalued by the market.”

However, Stadnik said there could be tax implications to consider and varying views on how to reallocate the corporate overhead costs. “A demerger could be simpler from a gains-on-sale-tax perspective,” he said.

WHSP said its indicative offer provided an opportunity for Perpetual shareholders to “unlock value in a tax efficient structure” while retaining exposure to each of Perpetual’s three businesses.

JP Morgan analyst Siddarth Parameswaran said Perpetual may look at spinning off the corporate trust and wealth management business with a possible partial sale for the right price.

“Both the corporate trust and wealth management divisions are quality businesses with good growth records and scale and command a higher multiple than the asset management business,” he said, adding the sale of corporate trust and wealth management businesses could help crystallise value for shareholders. “What will be important to look out on is how much the separation costs could be and if there will be any dis-synergies.”

Several companies have made a bid for the fund manager over the years including private equity and hedge fund Regal which lobbed two offers at the company last year.

Morningstar analyst Shaun Ler said while Perpetual’s corporate trust business could be relatively cleanly separated from the other divisions, there was some entanglement between the asset management and wealth management businesses which could make a split more complex.

However, Ler said the company had been under pressure to generate value for some time and that asset managers were increasingly consolidating amid a challenging environment.

“Asset managers around the world have been under pressure, and as a result, a lot of them have seen their stock prices trading at quite depressed levels,” he said. “The common trend right now is consolidation.”

Ler said the market was failing to realise the value of the business and that the firm was exploring an avenue to expedite value creation for its shareholders, but that the benefit of the change would lie in the price paid for any businesses it sold off.

“They’re sitting on some really good quality assets that they could potentially sell for higher funds than what the market is factoring in through the current stock price,” he said. “If they can sell their assets at a higher price than what the market is factoring in, it will be a positive for shareholders.”

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