Perpetual may split to unlock value after $2.5bn Pendal buy

After forking out $2.5bn to buy its major rival, wealth company Perpetual has raised the possibility of a break-up after a strategic review.

Wealth company Perpetual has raised the possibility of a break-up or sale after announcing a strategic review, aimed at unlocking value after its $2.5bn acquisition of rival Pendal Group.

Less than a year after its costly acquisition of Pendal, the 137-year-old global financial services company has suddenly put all options on the table after its share price hit a 24-year low in October.

It comes after Soul Pattinson became a substantial shareholder in November with a total economic interest, including equity swaps, of up to 9.99 per cent, making it Perpetual’s biggest shareholder.

Soul Pattinson first disclosed a total economic interest of 7.3 per cent in early September, just a few weeks before Perpetual bottomed at $18.70 a share.

On Wednesday, Peperpetual shares jumped 6 per cent to more than a three-month high of $23.55, albeit aided by a 1.8 per cent rise in the overall share market index.

Perpetual said that at its annual general meeting in October, the company “highlighted that our growth strategy had provided Perpetual with three quality businesses of scale, which enabled the board to assess additional strategic options that may arise, to maximise value for our shareholders.”

“Perpetual announces today, that since the AGM, it has further progressed the evaluation of those strategic options and will be exploring the benefits of unlocking additional value for Perpetual shareholders through separation of its Corporate Trust and Wealth Management businesses and creating a more focused Asset Management business,” the company said in an ASX statement.

“The review is being progressed by Perpetual’s board of directors and is in-line with the company’s regular evaluation of opportunities to create value for shareholders.”

It’s not inconceivable that Soul Pattinson’s rapidly growing presence on Perpetual’s share registry is leading chairman Tony D’Aloisio and chief executive Rob Adams to try harder to create value for shareholders.

Soul Pattinson executives could not be reached for comment on Wednesday.

It comes after Perpetual swung the axe on two of its global funds in September as it digested increased costs associated with its takeover of Pendal.

In August, Perpetual reported a 42 per cent drop in annual profit after its takeover of Pendal.

Perpetual, like many of its active rivals, is struggling to attract new dollars and retain existing investors because of a growing trend towards lower-cost and often better-performing index funds.

The Pendal takeover, which was completed in January, was sold to investors as a way of achieving scale. However, the company has so experienced worse than expected funds outflows.

Rob Adams recently took on an expanded role under a restructure announced in August.

He now has a dual role as CEO of asset management, without an increase in pay.

The Australian’s DataRoom reports that Perpetual has hired Bank of America, Goldman Sachs and Luminis for its potential spin -off or sale of its Corporate Trust and Wealth Management businesses.

Partners Group offered $1.3bn for Perpetual’s Corporate Trust unit last year.

Regal and BPEA EQT also launched a buyout proposal for Perpetual in November last year at $30 per share ($1.7bn) before sweetening the offer to $33 per share ($1.9bn) on November 10.

Both bids were rebuffed by Perpetual, which said they undervalued the company.

BPEA EQT, previously known as Baring Private Equity Asia before it was acquired by EQT, also made an earlier approach to buy the corporate trustee unit.

KKR & Co offered up to $40 a share in 2020 but was rejected on valuation grounds.

At the end of September, Perpetual’s assets under management totalled $211.7bn, while Corporate Trust’s funds under administration totalled $1.2 trillion.

Wealth Management’s funds under advice totalled $18.4bn.