Perpetual’s Skamvougeras goes amid merger: Pezzullo promoted

Perpetual’s longstanding head of equities Paul Skamvougeras has walked out the door as it remains in a messy three-way takeover tussle. Date set for Pendal vote.

Perpetual’s Paul Skamvougeras (left) and Vince Pezzullo (right). Picture: Hollie Adams/The Australian

Perpetual’s longstanding head of Australian Equities Paul Skamvougeras has resigned with immediate effect, as the firm attempts to consummate a takeover of rival Pendal and as it appears to fend off a bid from Regal Partners and EQT.

The news comes as Pendal received a meeting date of December 23 for shareholders to vote on the scheme of arrangement takeover by Perpetual.

The company said it had promoted deputy head Vince Pezzullo to the role following Mr Skamvougeras’s resignation.

“Paul is leaving at a time when his team has never been stronger, with positive momentum across investment performance and fund flows,” Perpetual chief executive Rob Adams said in a statement.

“Vince is a highly respected portfolio manager,” added Mr Adams. “His long tenure as Deputy Head of Equities combined with Perpetual’s investment in succession planning and the resultant strength across our Australian equities team, provides us with confidence that this will be a seamless and successful transition.”

It is believed that Skamvougeras and many of his former investment team — who are outspoken about corporate actions of companies they invest in when considered either ill advised or overdue — are against the $2.7bn takeover of Pendal.

Indeed, despite not beating the benchmark over 10 years, his fund’s short-term performance has improved dramatically on account of taking actions to force companies to make better decisions, such as the demerger of Tabcorp. On a three-year basis 92 per cent of the fund’s equities strategies have outperformed their benchmarks.

Value fund managers have been consolidating in recent years to try find scale as more investment dollars move into lower fee paying exchange traded funds (ETFs)

Perpetual itself is 18 per cent held by ETFs and some rival fund managers believe the absence of strong or active investors on its own share register has meant management and the board are not held to account when considering decisions such as takeovers.

“Funds management firms are all about the people and Perpetual is a value shop, which doesn’t have a good track record on acquisitions,” said one rival fund manager who declined to be named.

Historically mergers between fund managers have been fraught with risks and often end up with the sum of two parts – in a funds under management sense – being half what they would have been had the companies remained separate.

Since Perpetual took over US fund managers Barrow Hanley it has had outflows of about 20 per cent, and Pendal’s acquisition of TSW led to outflows of 8 per cent.

Perpetual’s agreed takeover of Pendal has certainly been messy to date.

Perpetual has been planning a deal to create a $201bn funds management powerhouse 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 given the outlook for Pendal has deteriorated.

The deal was thrown into disarray last month when Regal and EQT’s Hong Kong unit Baring Private Equity lobbed a $30 per share and then a $33 per share bid for Perpetual. Both were rejected.

Last week the Supreme Court of NSW ruled that Perpetual would be unable to simply pay the agreed $23m reverse break fee to Pendal to stall that deal and consider a potential higher bid from its own suitor.

Even though Adams was hired to run Perpetual with an acquisition led strategy, it is believed that there is some tension within the board about whether proceeding with the Pendal takeover is in the best interests of shareholders.

The deal will see Perpetual buy a company 1.5 times its size and increase its leverage at a time when stockmarkets are highly volatile.

In a win of sorts, Perpetual was able to revise its offer last week so that Pendal shareholders will receive one newly issued share in Perpetual, in exchange for seven Pendal ordinary shares and $1.65 cash per Pendal share.

That compares to the original offer of one newly issued share in Perpetual in exchange for 7.50 Pendal ordinary shares and $1.976 cash per Pendal share.

It’s unusual for a takeover target to agree to revised terms that include more scrip and less cash, but in this case, Pendal will have re-evaluated the value of Perpetual shares in the light of the Regal and EQT consortium bid for Perpetual, as well as news that in the past few months EQT, Partners Group, and Challenger have shown interest in Perpetual’s corporate trust business.

The new deal, agreed last week, sees Pendal with slightly more of the combined company, at 48.9 per cent from the first agreed 47 per cent, and the cash component dropping by $125m leaving it in a stronger position to face ongoing stock market volatility.

Perpetual shares fell 1.4 per cent to close at $26.55 on Monday and Pendal shares fell 0.2 per cent to $4.83.