Perpetual lobs takeover bid for Pendal Group, which values the group at $2.4bn

Perpetual boss Rob Adams is seeking to pull off the nation’s fourth-largest asset management deal with a bold $2.4bn takeover tilt for funds management house Pendal Group.

Perpetual, which is led by Rob Adams, has tabled a $2.4bn takeover bid for Pendal Group.

Perpetual chief executive Rob Adams is seeking to pull off the nation’s fourth-largest asset management deal with a bold $2.4bn takeover tilt for funds management house Pendal Group – although is already facing pressure to sweeten the offer.

Pendal’s board, shareholders and some analysts were treading cautiously on the offer on Monday, suggesting Perpetual may need to up its bid to start engagement on the transaction.

Under the proposed deal, Pendal’s shareholders would own 48 per cent of the merged business and the transaction would create a funds powerhouse with more than $200bn under management.

The parties told the ASX the indicative non-binding bid was pitched at one Perpetual share for every 7.5 Pendal shares plus $1.67 cash. That represents an indicative offer value of $6.23 a Pendal share, based on the buyer’s closing share price on Friday.

The Deborah Page-led Pendal board said it had started assessing Perpetual’s offer but highlighted the bid was made against the backdrop of volatile global markets weighing on the valuation of fund managers. The offer landed with the target company’s board late on Friday. The bid reflects a premium 39.2 per cent to Pendal’s closing share price on Friday, or a 35.4 per cent premium to its 30 day volume-weighted average price.

On a longer-term view, the offer represents a slim premium of 0.3 per cent to Pendal’s volume-weighted average price for the 180 days before April 1.

If the deal gets traction at its current price, it will mark the fourth-largest purchase of an Australian asset management firm on record, according to Refinitiv.

It is eclipsed only by Mitsubishi UFJ Trust and Banking Corporation’s $4bn acquisition of Colonial First State Global Asset Management, National Australia Bank’s purchase of MLC and Commonwealth Bank’s initial buy of Colonial in 2000.

Globally, takeover activity soared in the funds management sector last year with deals including T. Rowe Price Group’s $US4.2bn ($5.6bn) acquisition of New York-based Oak Hill, while GTCR and Reverence Capital Partners snapped up Wells Fargo Asset Management.

Active fund managers are navigating a spate of pressures including the increased flow of money into cheaper and passive investing styles and in Australia many industry funds are moving more investment functions in house.

The Perpetual bid initially triggered a 24 per cent jump in Pendal’s share price to $5.56 on Monday morning, before the stock lost some ground to close 18.1 per cent higher at $5.29. Before the rally, its shares were down 19.6 per cent this year. Perpetual on Monday said the Pendal bid was “strategically and financially compelling” and its estimates have the tie-up delivering about $50m of pre-tax annual cost synergies.

“Perpetual believes that the proposal represents an extremely attractive opportunity to deliver compelling value to both Perpetual and Pendal shareholders,” it said.

But investors sent Perpetual’s shares lower when they resumed trading on Monday. The stock finished Monday’s session 6.6 per cent lower at $31.97. Prior to that the company’s shares had fallen 4.8 per cent year-to-date to close at $34.23 on Friday.

Given the movements in the respective stocks on Monday, Pendal’s shareholders and the company’s board will no doubt try to secure a better price from Perpetual if negotiations get under way.

“I’d imagine there is plenty of room for negotiations, it looks pretty opportunistic,” a Pendal shareholder said of the Perpetual bid on the basis of anonymity. “It’s probably going to set off more mergers and acquisitions in this space.”

Morgan Stanley analysts highlighted that to fund the $639m cash component of the mooted transaction, Perpetual would need to raise debt or equity.

“We wrote previously that global consolidation in asset managers may extend to Australia,” they said in note to clients. “We view Perpetual’s and Pendal’s ESG capabilities as complimentary.”

But the analysts led by Andrei Stadnik believe investors will question the Australian overlap between Pendal and Perpetual, although the latter’s investment style is tilted toward value.

While in the US, Perpetual’s Barrow Hanley and Pendal’s Thompson, Siegel & Walmsley are both valued-focused investment firms.

Bell Potter analysts said: “This looks a sensible approach on the part of Perpetual, and looks opportunistic.”

MST analyst Lafitani Sotiriou came out swinging against Pendal’s leadership: “This is what happens when you have a lazy board/detached from reality in Pendal.”

Pendal’s board said the bid was launched “when significant geopolitical instability, the economic impacts of the ongoing Covid-19 pandemic and broader market volatility” had disrupt global markets.

“This has materially impacted the trading values of global asset managers which may not currently reflect their long-term potential,” the statement added.

“The board of Pendal has commenced an assessment of the indicative proposal, considering the value of Pendal on a strategic and control basis.”

The statement said shareholders did not need to take any action. Mr Adams – who took the reins of Perpetual in 2018 – has embarked on a string of acquisitions during his tenure, including Barrow Hanley and Boston-based Trillium Asset Management an ESG manager.

In October, Perpetual bulked up its corporate trust arm by purchasing Laminar Capital. That came about two months after announcing the acquisition of Jacaranda Financial Planning.

On Monday, Perpetual said: “Under the (Pendal) proposal, these two highly complementary businesses would combine to create a leading global asset manager with significant scale, diversified investment strategies, strong ESG capabilities and a world-class global distribution network, complemented by high quality wealth management and trustee businesses.

“The combined group will be well placed to grow its asset management businesses across all key markets and channels, gain improved leverage and scalability across a unified business platform.”

Perpetual noted, though, that there was no certainty around the offer leading to an agreement or transaction.

The board of Pendal has Macquarie Capital in its corner as defence adviser, while King & Wood Mallesons is doing the legal work.

Perpetual has Goldman Sachs acting as adviser and Herbert Smith Freehills tending to legal matters. Mr Adams earlier this year said 2022 would be a stockpicker’s year.