KKR’s $2.18bn Perpetual deal ‘pretty good’: Soul Patts

Soul Patts boss Todd Barlow says KKR’s $2.18bn to buy Perpetual’s corporate trust and wealth management units looks ‘pretty good’, but has left the door open to vote against the deal.

Washington H. Soul Pattinson boss Todd Barlow says the Perpetual $2.2bn deal looks ‘pretty good’. Picture: John Feder

Soul Patts boss Todd Barlow says the headline number for the sale of Perpetual’s corporate trust and wealth management units to Kohlberg Kravis Roberts of $2.18bn looks “pretty good”.

But he is “open minded” about voting against the deal if the costs come in too high.

Speaking to The Australian’s DataRoom on the sidelines of the Macquarie Australia Conference in Sydney, Mr Barlow also said the wealth manager “could have been a bit clearer” when selling the deal to shareholders.

Mr Barlow’s comments come after Perpetual endured a horror day on Wednesday, both on the sharemarket and in the boardroom, with investors in the wealth manager lashing the board and management over the lack of detail provided in its proposed $2.18bn break-up.

Perpetual told the market it had agreed to sell its valuable corporate trust and wealth management businesses to private equity giant KKR for $2.18bn, but was unable to tell shareholders what the net proceeds would be.

Mr Barlow said he was yet to see the details of the proposal and that the conglomerate, which is Perpetual’s biggest shareholder with a 15 per cent stake, would be keeping a close eye on it.

He added that Soul Patts remained “open minded” about voting against the sale to KKR if it emerged that the costs of the transaction were too high and it in fact was better for the business not to be broken up.

Perpetual shares have plunged 9 per cent since the wealth manager announced the deal, while the board and management have been hit with hefty criticism, including from its former equities boss Peter Morgan, over the lack of detail on the transaction.

If it goes through, private equity giant KKR will walk away with the corporate trust and wealth management operations, as well as the Perpetual name.

But shareholders have no idea what the net proceeds will be, with separation and transaction costs, as well as a hefty capital gains tax bill, all undisclosed at this stage.

The asset management side of the business, meanwhile, will stand alone as a pure-play offering. Its first task will be to find a new chief executive, with current group CEO Rob Adams to move on once the deal is done.

Mr Adams told The Australian the separation and transaction costs would be to the lower end of between 7 and 20 per cent of the purchase price. But the funds group also needs to factor in a capital gains tax bill and will not know exactly what this will be for a number of weeks.

He said the board chose not to wait until it knew the extent of the tax bill before announcing the deal due to ongoing market speculation.

Mr Barlow said Soul Patts was well placed from a balance sheet perspective for mergers and acquisitions. His company put forward a takeover bid for Perpetual in late 2023 but the offer was rejected for undervaluing the business.

Mr Barlow said he saw a great opportunity in bidding for Perpetual, which he described as “a great Australian company “ which Soul Patts had been interested in it for decades.

In recent years, Soul Patts had seen the performance of Australian asset managers weaken and become undervalued, which was why it put forward a proposal.

Perpetual announced late last year it was reviewing its corporate trust unit before its major shareholder Soul Patts told the market the same day that it had earlier launched a bid for the company that had been rejected.

Soul Patts claimed the offer valued Perpetual at $3bn, but it was rejected, a decision backed by its retail shareholder base.

It has since increased its holding in Perpetual to 14.99 per cent.

At the time of its bid, Soul Patts claimed its offer would ascribe a value of $1.885bn to the Corporate Trust unit, while it would give the asset management arm to investors.

Soul Patts, which is understood to have bought into Perpetual at about $25, then said its offer represented 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 of $21.

Private equity firms were known to be keen to buy the Corporate Trust unit of Perpetual before, but were rebuffed by the company.

Analysts at Bell Potter have called the Perpetual share price reaction following its $2.18bn sale of its Corporate Trust and Wealth Management units to Kohlberg Kravis Roberts as “short sighted” and have placed a buy recommendation on the stock.