Perpetual rejects BPEA EQT & Regal’s $1.7bn carve up proposal

Perpetual chief executive Rob Adam.Picture: John Feder,The Australian.

The EQT-owned Baring Private Equity Asia plans to take Perpetual’s private clients business and corporate trustee unit while Regal Partners would own the asset management arm of the business as part of their $1.7bn buyout proposal.

Their offer at $30 a share was rejected by Perpetual, which said it “materially undervalues” the company.

But it is understood that the opportunistic offer at only a 11.5 per cent premium to Perpetual’s previous closing price was part of an early effort to gain due diligence.

DataRoom understands that Baring, now renamed BPEA EQT, would have contributed about $1.45bn to the offer, leaving Regal in a position where it would need to stump up about $250m of cash.

But there is a lack of clarity surrounding what party would take on Perpetual’s debt pile of about $400m and $150m in tax costs for a break up.

The $680m listed Regal, which has this year acquired hedge fund VGI Partners, has about $200m of cash and investments on its balance sheet.

Earlier, Partners Group had offered $1.3bn for Perpetual’s corporate trustee business, but the offer was rejected, as was an earlier offer by BPEA EQT.

Sources say Partners walked away, reluctant to buy all the business or involve itself in hostile corporate activity.

Private equity firms are known to have had interest in Perpetual for months and there has been talk on and off that a party may come forward with a takeover proposal.

BPEA EQT, a result of a merger between Baring and Swedish private equity firm EQT, bid for the business through the BPEA Private Equity Fund VIII.

It comes over two months after Perpetual agreed to buy Pendal for $2.5bn.

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.

Since that time, 11 per cent of Perpetual shares have been targeted by short sellers, capitalising on an arbitrage play where they can profit through the sale of Perpetual shares and acquisition of shares in Pendal.

Perpetual shares in August around the time the deal was agreed were trading at over $30.

They closed on Wednesday at $26.90, and at that time, the Pendal deal would have been worth $2.1bn.

Regal and BPEA EQT are thought to be banking on a lack of support for Perpetual’s merger transaction with Pendal among shareholders, causing Perpetual’s share price to fall further.

But a large number of shareholders on Perpetual’s register are retail shareholders that will likely follow the company’s instructions.

Perpetual’s shareholders are unable to vote on the Pendal deal, but Pendal shareholders vote next month and are expected to support it.

Perpetual must pay a break fee should the deal not complete.

The offer was timed one day ahead of Pendal’s quarterly update.

An analyst said plenty of synergies existed when it came to a Pendal-Perpetual tie up, but they questioned the capability of Australian alternative investment manager Regal to take on a complex global asset management operation, creating a group with $90bn of funds under management.

Bank of America and Goldman Sachs are in Perpetual’s corner and Pendal is advised by Macquarie Capital and Adara Partners, along with law firm KWM.

Barrenjoey’s senior partner Matt Hanning is a former Baring advisor.

Its role comes after it came out this week with an annual net profit of $5.3m and an operating loss of $55.6m for the year to June, as staff costs set it back $189.5m.

It appears to be in hot pursuit of mandates at a time staff costs last year set it back $189.5m and high profile roles on earlier transactions have not completed, including advising KKR on a bid for Ramsay Health Care and Dye & Durham’s buyout offer for Link.