Christmas comes early for Perpetual, as Pendal takeover approved

It will be a very merry Christmas for Perpetual after Pendal shareholders voted to approve a $2bn takeover of the group by the rival fund manager.

Rob Adams is the chief executive of Perpetual which will acquire Pendal and create a fund manager with $201bn under management. John Feder/The Australian.

Pendal is confident of retaining key personnel after its tie-up with former rival fund manager Perpetual, following a shareholder vote which enthusiastically supported the $2bn deal.

Pendal drew a crowd of more than 60 interested shareholders and observers in person two days out from Christmas to seal its takeover on Friday, spruiked by the soon-to-be former chair as offering certainty in an uncertain world.

Shareholders voted overwhelmingly in favour of the deal, which will bring together approximately $201bn in funds under management.

The vote was approved with a final count of 99.28 per cent in favour and 0.72 per cent against.

But Pendal chair Deborah Page told The Australian the key for success of the merged business would be how it managed its key personnel and integration.

“The secret to this one is a merger of asset management companies can never happen unless your fund managers want it to happen, because it’s a people business,” she said.

“So one of the most important things that we had to do very early on after the approach from Perpetual was to engage internally with our with our fund managers to see whether this was something they wanted to do because they’re big shareholders in the business as well and so they’re not stupid, they can see that scale is necessary.”

Ms Page said the deal to combine with Perpetual created a larger wealth manager that could weather the uncertain market ahead and provide a more certain income stream.

“This environment has reinforced the strategic rationale for the transaction as we believe achieving scale will be key to the combined group’s success,” she said.

“The combination of Pendal and Perpetual will create a larger, more diverse business that is resilient across different market cycles.”

Perpetual’s corporate trust business, which contributed $72.6m of the group’s $201.2m underlying profit last financial year, is the jewel in the crown for investors keen on ongoing returns.

The corporate trust is seen as a defensive asset for Perpetual, offsetting the variable earnings that can flow from the asset management arm which is facing the double blow of down markets and continued fund flow to passive managers.

Meanwhile, the takeover will see Pendal shareholders handed 1 share in Perpetual for every seven shares they hold. It will be topped up by a $1.65 cash component for each Pendal share minus the 3.5c dividend Pendal paid on December 9.

The deal assumed an offer value of $5.979 per Pendal share based on Perpetual’s 24 August close of $30.30.

But the final handshake only arrived after Pendal knocked back a series of indicative, non-binding entreaties that sweetened the fund’s managers original offer.

The April approach that kicked off the dalliance between rivals offered 1 Perpetual share for every 7.5 Pendal shares, in addition to $1.67 cash for every Pendal share — representing an indicative value of $6.23.

The initial deal would have seen Pendal shareholders walk away with 48 per cent of the merged entity, but that figure slipped to 47 per cent after a series of changes to the deal on the back of global market turmoil. However it was again revised, to leave Pendal investors with 48.9 per cent of the new business.

On Friday Pendal chief executive Nick Good beamed into the takeover vote, but the mastermind of the takeover deal and boss of the merged business Perpetual chief executive Rob Adams was there to work the room.

With the deal approved, Pendal will formally seek court approval on January 11 before shares in the fund manager will cease trading on January 12.

Implementation of the scheme and payments to shareholders is due on January 23.

Mr Adams said it was clear shareholders supported the deal given so many voted in favour.

“I think it’s great to get such resounding positivity for Pendal shareholders for the transaction,” he said.

“Certainly from the feedback we’re getting, we’ve had throughout the whole process from the shareholders on both sides of the business, people understand the strategic rationale and are looking forward to being shareholders of the combined entity.”

But not everyone has supported the proposal to acquire Pendal, with attempts by Regal Funds Management and its private equity partners BPEA EQT to capitalise on the sharemarket’s distaste for the deal.

Short sellers have targeted Perpetual, with shares sliding in the funds manager leaving room for Phil King’s Regal to lob a $33 bid for the fund manager.

The move by Regal saw Perpetual head to the NSW Supreme Court in a bid to press for a delay on the Pendal takeover.

Perpetual’s longstanding head of Australian equities Paul Skamvougeras – who was believed to be against the takeover deal – quit the wealth manager in late November as both sides jockeyed for positions within the merged entity.

Part of the offer for shareholders in the merged entity are $60m in cost savings that will take the form of headcount reductions across the merged business as well as plans to walk away from one of the two flagship Sydney CBD offices currently occupied by Pendal and

Perpetual.

The combination is expected to cost $110m over 18 months.

On top of that Perpetual will wear $40m in costs from the deal, while Pendal will face $31.5m in transaction costs.

Mr Adams, Perpetual’s current boss, will lead the new combined company, with all but one key position taken by his firm’s employees.

Mr Adams said it was important to try to hold on to staff as the merger was resolved.

“It’s very much a people business and so we will engage people to communicate with them in the most appropriate way in terms of incentivisation,” he said.

“Pendal have done a terrific job in terms of the way they attract and retain people.”

Amanda Gillespie will run the combined firm’s asset management unit in Australia, while asset management for the Americas will be run by David Lane.

Pendal executive Alexandra Altinger, who currently runs J O Hambro Capital Managed, will lead the UK, European and Asian asset management unit.

Perpetual named Adam Quaife as chief distribution officer, Paul Chasemore was named chief people officer, Mark Smith will run Perpetual Private, Richard McCarthy will run Perpetual Corporate Trust, Sam Mosse was named chief risk and sustainability officer, Chris Green was named chief financial officer, and Amanda Gazal was named chief operating officer.

Three Pendal directors were slated to join the Perpetual board, but former Star Entertainment director Ben Heap withdrew his nomination after being targeted by the corporate regulator.

This leaves current Pendal non-executive directors Christopher Jones and Kathryn Matthews to join the new company.

Perpetual shares edged back 0.6 per cent on Friday to $24.45, in a down market, while Pendal slipped 0.4 per cent to $4.97.