Perpetual knocks back non-binding $1.7bn takeover bid

Perpetual has rejected an ‘under valued’ $1.7bn takeover bid from Baring and Regal and insists it plans to proceed with its takeover of Pendal instead.

If Perpetual’s takeover of Pendal goes ahead it will be among the top five Australian asset management by size. Picture: John Feder

Private equity giant EQT and local funds manager Regal Partners have thrown a grenade into an agreed $2.5bn takeover deal between Perpetual and Pendal by launching a $1.7bn offer for the larger of the investment firms.

Perpetual was swift to reject the non-binding offer, which came in after the market closed on Wednesday, declaring the $30 per share bid “materially undervalues” the company.

“This offer is uncertain and conditional and the Perpetual board believes that it is not in the best interests of its shareholders to engage on this offer and has therefore rejected the offer,” Perpetual told investors on Thursday.

The unsolicited bid by EQT’s Hong Kong unit Baring Private Equity and ASX-listed Regal values the company at only a 3.5 per cent premium to its 180-day volume-weighted average price, but a 11.5 per cent premium to its close on Wednesday.

While Perpetual has knocked back the $1.7bn bid, fund managers and analysts believe the consortium will be back and the uncertainty could be enough to kill off the Pendal acquisition.

“It’s the hunter becoming the hunted,” said Hugh Dive of Atlas Funds Management. “They want to scupper the Pendal deal and break up Perpetual. It’s an elaborate dance so they have to bid low and up the price … The first bid is never the final bid.”

Perpetual shares rose 7.1 per cent to close at $28.82 while Pendal shares fell 10.7 per cent to $4.52 and Regal shares lifted 4.5 per cent to $2.80.

Mergers in the global active funds management sector have increased in recent years as players faced downward pressure on fees and a strong shift towards cheaper index funds.

Perpetual shares had been trading lower in the lead-up to the takeover offer by Baring and Regal but Mr Dive, who holds Pendal stock, said there was clear value in breaking up Perpetual, which would be harder to do if the Pendal bid proceeded because it involves scrip. Under the Perpetual proposal, which now may be in doubt, Pendal shareholders would control 47 per cent of the combined company by receiving one Perpetual share and $1.976 cash. The combined group would have $201bn in funds under management if there were no outflows.

Credit Suisse said in a research note that it was plausible the Baring consortium would increase their takeover offer for Perpetual to $35 per share because the current $30 bid “looks too low”.

“We view this as an opportunistic bid at a time when Perpetual’s share price is depressed due to technicals rather than fundamentals, given the current Perpetual / Pendal deal, and does not reflect the underlying value in Perpetual,” Credit Suisse analyst James Cordukes said.

Short sellers have been targeting Perpetual, betting that the takeover – which still requires regulatory and shareholder agreement – may not proceed.

But the Perpetual board said it was “committed to progressing its acquisition of Pendal”. “Perpetual’s board advises shareholders to take no action at this time,” the company said in an ASX statement.

If Perpetual’s takeover of Pendal goes ahead, the merged group will be among the top five Australian asset management deals by size, according to Refinitiv. Others of that scale include Mitsubishi UFJ Trust and Banking Corporation’s $4bn acquisition of Colonial First State Global Asset Management, NAB’s purchase of MLC and Commonwealth Bank’s initial buy of Colonial in 2000.

Regal on Thursday responded to the rejection of its $1.7bn takeover offer by describing it as disappointing “given the consortium’s belief that the proposal is compelling for Perpetual shareholders”. Regal said the consortium would “seek to understand the Perpetual board’s rationale and constructively engage with their concerns”. “The consortium believes that the proposal provides Perpetual and its shareholders with an outcome that is superior to the acquisition of Pendal Group” it said.

Under the proposal, which calls for a termination of the $2.7bn Pendal acquisition, Regal would buy the asset management businesses of Perpetual and BPEA EQT Fund the Perpetual corporate trust and private clients businesses.

“An acquisition of Perpetual’s asset management businesses provides a compelling opportunity for Regal to accelerate the growth and scaling of its investment and distribution platform globally and to further diversify its existing product, revenue and client base,” Regal said.

“The combination of Regal’s and Perpetual’s asset management businesses would create a leading provider of active investment strategies globally, with over $90bn in assets under management across traditional and alternative asset classes, servicing a deep pool of client relationships across institutional, HNW and retail channels.”

However, some rival fund managers have pointed to the very different cultures at Perpetual and Regal.

Baring and Regal are also no strangers to being merged themselves, with EQT this year taking over Hong Kong-based Baring Private Equity Asia in a €6.8bn deal – the biggest private equity takeover of one firm by another.

Regal Partners was formed through a March merger between VGI Partners and Regal Funds Management. Its chief executive, Brendan O’Connor, said he looked forward to further discussions with Perpetual.

Partners Group recently tried to buy Perpetual’s corporate trustee business for as much as $1.3bn but was rebuffed.

Originally published as Perpetual knocks back non-binding $1.7bn takeover bid