The $2.5bn Perpetual’s rejection of the complex scrip proposal from Washington H. Soul Pattinson which emerged on Wednesday night was expected, but what it does is put the company back into play.
Does Regal Funds return with another attempt to buy Perpetual with a private equity firm, and do EQT and Partners Group make an offer?
Perpetual’s announcement early on Wednesday that it was reviewing its Corporate Trust and Wealth Management operations had many guessing what was really going on, after the group previously had been so steadfast in its resolve to keep the business despite plenty of offers coming its way.
Apparently, there’s been about six parties circling of late.
Clearly, there was no plan to tell the market about the Soul Patts bid, but the Australian listed conglomerate, chaired by Robert Millner, beat the company to it.
Perpetual would have argued that it was too complex and wasn’t even sure how firm such a proposal was, and that’s more or less what it did Wednesday night in a statement to the market.
The claim by Soul Patts is that the offer will value the business at $3bn, but that’s based on the value of its own share price, which is not certain.
Shareholders will almost certainly want at least some cash.
Its offer landed way back on November 21 for Perpetual, of which it already owns
9.9 per cent as a long-term shareholder.
Soul Patts has bid for a number of other Australian listed groups and assets, but it’s not known for offering top dollar; in fact it’s the opposite.
Offers for coal mines by New Hope, of which Soul Patts is a major shareholder, are low ball, while it bid for Regis Healthcare in 2020 but it was rebuffed over its $556m proposal.
It is also understood to have shown interest in Star Entertainment.
On the Soul Patts side is Macquarie Capital, while Perpetual has not only Goldman Sachs but Bank of America and Luminis Partners assisting on its review.
Soul Patts says it would acquire all of Perpetual by way of a scheme of arrangement, then undertake a simultaneous demerger of Perpetual Asset Management distributed in-specie to existing Perpetual shareholders.
Soul Patts would then retain Wealth Management and the Corporate Trust arm in exchange for Soul Patts shares.
Soul Patts believes its offer implies an equity value of $3bn, comprising $1bn worth of its scrip and Perpetual Asset Management’s scrip estimated to be worth $2bn.
It says its offer represents a value of $27 a share and a total enterprise value of $3.5bn, a 28.6 per cent premium to the Perpetual share price on November 13 at $21.
After adjusting for the liabilities that Soul Patts will assume, and excluding the value of Perpetual Asset Management, the implied value for Corporate Trust and Wealth Management is $1.885bn.
The challenge for Perpetual is that its $2.1bn acquisition of Pendal has failed to fire in the current market, where outflows are plaguing all Australian listed asset managers amid economic uncertainty and with high inflation.
Its share price has fallen in the past year by 10 per cent in the wake of the acquisition.
Perpetual also has $734m of borrowings to worry about following the transaction at a time when lending costs are higher than they have been for some time.
The beauty of the Corporate Trust unit for Perpetual is that it is a stable and lucrative earner, and without it the business loses its defensive arm to offset the volatile nature of asset management.
Perpetual had approaches for the Corporate Trust business in 2022 at $1.3bn from Partners Group and BPEA EQT, but that was in a market when there was far more appetite for acquisitions from private equity groups, and debt to fund transactions was less expensive.
Announcing a review or spin off highlights that the sum of parts in the Perpetual business are more valuable than the whole, propelling the share price higher.
Before the Soul Patts bid was announced, Perpetual shares closed 6.26 per cent higher at $23.76.
Regal and BPEA EQT also offered $33 per share ($1.9bn) on November 10 for Perpetual.
Both bids were rebuffed by Perpetual.
Hedge funds like what they hear at Southern Cross
Triple M and Hit radio network owner Southern Cross Media Group may soon have some hedge funds on its share register.
More exposure to copper the prize for big miners
Moves by BHP and Rio Tinto to think about major transactions says a lot about their expectations for the country’s iron ore production.