Challenger Financial weighs Perpetual asset management tilt

If Perpetual decides to scrap the merger, it may have to pay a $23m break fee.

Perpetual boss Rob Adams is under growing pressure to run an auction for the company’s corporate trust unit, as sources suggest that a number of suitors, including Challenger Financial, are also weighing a bid for the $1.9bn company.

DataRoom understands that Challenger has interest in buying Perpetual’s asset management arm, while former suitor Partners Group is still an eager contender for Perpetual’s corporate trust division after earlier offering $1.3bn for the unit — the pair could even team up.

Macquarie Group could be an interested buyer of Perpetual’s private client business, while Kohlberg Kravis Roberts and other major global private equity funds would also have a keen interest in the corporate trust unit.

Infrastructure-like funds would also find the corporate trustee business attractive, while Challenger, backed by Apollo Global Management, would be looking at Perpetual’s asset management operation for its Fidante investment management business.

Pacific Equity Partners had also earlier taken a look.

It comes as Perpetual rejects a highly anticipated sweetened offer from Regal Partners and BPEA EQT of $33 per share or almost $1.9bn excluding debt, trumping an earlier $1.7bn offer at $30 per share.

Perpetual rebuffed the offer and has proposed a delay to the first court hearing this week for a $2bn-plus acquisition of Pendal Group, a request rejected by Pendal.

Should the deal not go ahead, it’s contracted to pay Pendal a $23m break fee.

With such strong interest in the corporate trust unit, there is a growing view Mr Adams, a previous Challenger executive, should run a sale process for Perpetual’s corporate trustee unit, — which makes up the majority of the company’s value — or demerge the business.

Perpetual could recut the terms of the transaction with Pendal and return the proceeds of any sale to Perpetual’s shareholders while providing more cash to Pendal investors.

Perpetual’s management team has been forging ahead with its planned Pendal merger even after declining share prices of both groups has many calling into question whether the deal still makes sense and whether the value declines further when the two asset managers combine.

One view is that the market does not ascribe value to legacy fund management businesses such as the offshore Barrow Hanley Global and Trillium Asset Management businesses Perpetual has purchased for a collective $700m.

As part of Perpetual’s earlier agreed deal, Pendal shareholders get one Perpetual share for every 7.5 shares they own plus $1.976 of cash for each Pendal share, totalling up to $756m of cash overall as part of the earlier terms agreed.