Perpetual attempts to stall Pendal as suitors circle

The fund manager is being pursued by Regal Partners and its private equity partner, while KKR has separately flagged its interest in the company.

Perpetual is attempting to delay a long-running merger process with rival fund manager Pendal as it attempts to raise a higher price from potential suitors.

On Thursday, the Perpetual rejected a $33 per share offer from Regal Partners and its private equity partner BPEA EQT, describing the bid as one which materially undervalues the company.

Others have also been interested. KKR has held discussions with Perpetual in recent months, having last attempted to purchase the company in 2010. The fact details have not been disclosed to the market suggests discussions have not progressed to a formal offer.

Perpetual has been planning a deal with Pendal since April – although many in the market have remained sceptical about whether the proposal was the best outcome for the company’s shareholders.

Since Perpetual made its original offer, the outlook for Pendal “has deteriorated significantly when compared to (Perpetual’s) earnings base,” wrote MST Marquee analyst Lafitani Sotiriou.

“What is particularly staggering is that (Perpetual)’s board has come out today and rejected the (Regal) consortium bid noting execution risk as one of its concerns.”

Despite the rejection of the new bid, Perpetual has been moving to slow the merger process. The Australian earlier reported that the company had refused to hand over information required to proceed with the deal and asked Pendal to delay the process for up to a week.

The delay in providing the information – and a request for more time ahead of expected court approval on Thursday – has raised concerns at Pendal that Perpetual is considering alternatives to the merger of the companies.

On Thursday, Pendal warned Perpetual that it could not call off or further delay the merger process after Regal and EQT escalated their efforts to scupper the deal.

In a statement, Pendal said that Perpetual had requested a delay to the merger process, adding that it “intends to proceed to the first court hearing for the scheme this week”.

“Pendal notes that while the (implementation deed) permits Perpetual to engage with another proposal, it does not permit Perpetual to terminate or otherwise abandon the scheme in order to pursue a proposal,” it reads.

Perpetual confirmed later on Thursday that it had requested a “short deferral to the first court hearing … in light of developments since (it) was scheduled.”

“Perpetual’s board needs to fulfil its fiduciary and statutory duties to its shareholders, in light of the recent approaches from the consortium and further interest in Perpetual, as well as market developments and Pendal-specific considerations, including to assess and make the required disclosures in the scheme booklet,” the statement reads.

Perpetual shares closed at $29.09 on Wednesday, and were at around $26 before the Regal consortium lobbed its first bid last week. Equities analysts had labelled the Regal takeover bid for Perpetual as “opportunistic”. “We view this as an opportunistic bid at a time when Perpetual’s share price is depressed … and does not reflect the underlying value in Perpetual,” Credit Suisse brokers said last week, referring to a $30 per share bid lobbed last week.

Perpetual shares rose 11.9 per cent, or $3.45, to close at $32.54 on Thursday. Pendal shares fell 10.9 per cent to close at $3.91.

One fund investor in Perpetual, who spoke on condition of anonymity, said the combination of Regal and Perpetual was “a strange model” and it would be unclear “who is in charge”. “Deciding on this in the run up to a well considered merger seems very premature and whimsical. The (funds under administration) are very different, and the business models are different,” he said.

However, Regal chief executive Brendan O’Connor said the fund manager was “deeply disappointed” by the rejection of its offer. “We firmly believe the improved proposal creates significantly more value for Perpetual’s shareholders as compared to the Pendal transaction,” he said.