Analysts, shareholders lash Perpetual on $2.2bn KKR deal

The wealth powerhouse will be broken up, with KKR to walk away with the corporate trust and wealth management businesses. But shareholders are kept in the dark over the net proceeds as its shares drop.

Perpetual CEO Rob Adams. Picture: Nikki Short

Perpetual shares have plunged 7 per cent and the board whacked with hefty criticism, including from its former equities boss, after the 138-year-old wealth powerhouse announced it would be carved up in a $2.18bn deal.

If the deal 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.

Speaking to The Australian, Peter Morgan, Perpetual’s former equities boss, lashed the board and management and said chairman Tony D’Aloisio should leave alongside Mr Adams.

“The best way to put it is that this (deal) is trying to correct mistakes made by people who really had no idea about how to run a funds management business,” Mr Morgan said.

“It’s just turned into a mess. Personally, I think the chairman should be going too … And it was such an easy business, but it just became a plaything, basically, for the board and management.”

Under a scheme of arrangement agreement, KKR will acquire Perpetual’s corporate trust and wealth arms for $2.18bn.

Shareholders will not be told the estimated cash proceeds until the group’s full-year results in August, while the transaction, which requires shareholder and other approvals, is expected to be finalised by February.

What’s left of the ASX-listed Perpetual -- the asset management business -- will rebrand by December 2025, but a brand licensing agreement with KKR will see Perpetual’s Australian equities teams continue to use the Perpetual brand for a period of up to seven years.

In a call midmorning, the board faced questions from irate analysts frustrated over the lack of detail, including MST Financial’s Lafitani Sotiriou who asked “Is this a joke?”

“How can you be recommending a deal that you haven’t even done the detailed work on? There’s got to be something sitting behind it, right? This is a joke, right?,” Mr Sotiriou said.

“You’re coming out to the market saying we think this is the best deal on the table, but you can’t even tell us what it is. This is big key information, it is actually a joke.”

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 Morgan, who still holds shares in the company he left in the early 2000s, said he didn’t know yet which way he would vote on the deal.

Perpetual’s biggest shareholder, Soul Patts, which lobbed its own takeover offer for the group last year, also said it was awaiting more details on the transaction.

“It appears the structure of our efficient proposal has largely been adopted by Perpetual. While we await further detail, we commend the company for conducting the strategic review to realise a superior outcome for shareholders,” Soul Patts’ chief investment officer Brendan O’Dea said.

Shareholders are angry over Perpetual’s deal with KKR, given the limited details. Picture: Damian Shaw/NCA NewsWire

Mr D’Aloisio said moving Perpetual to be a standalone asset management business would provide better long-term value for shareholders.

“Shareholders will benefit from cash proceeds following the separation and acquisition by KKR of our wealth management and corporate trust businesses, while also retaining ownership in a more streamlined and debt-free global asset management business,” he said.

“In assessing the options under the review, the board determined that a separation of corporate trust and wealth management via a scheme of arrangement was a superior path for our shareholders compared to other options available, delivering certainty, an attractive valuation and nearer-term returns to shareholders.”

The strategic review considered a number of options that involved engagement with several parties and potential bidders, he added.

“KKR offered both compelling value for shareholders as well as the highest degree of certainty in relation to the funding, execution and the ability to work with Perpetual to deliver a successful outcome. These were important criteria as the board considered and assessed options to maximise value for shareholders.”

Mr Adams said it was a positive outcome for shareholders, clients and staff.

“Each business will now have the focus and capital required to continue to grow in their respective markets, ensuring our clients continue to receive world-class advice and services,” he said.

“In the remaining asset management business, our shareholders will own a simpler, more streamlined, pure-play and independent global multiboutique investment management business, with organic growth potential.”

Mr Adams, who has helmed the group since 2018, overseeing a raft of bolt-on acquisitions including US asset manager Barrow Hanley, ESG investment specialist Trillium and, most recently, the $2.5bn takeover of rival Pendal Group, will retire following a transition period once the transaction is completed.

Perpetual will provide transitional services to KKR for a period of 18 months once the deal completes, with the option to extend for a further 12 months. Following completion of the transaction, the wealth management and corporate trust businesses will continue to operate as standalone independent businesses, with continuity of management.

Perpetual shares closed Wednesday’s trade down 7 per cent at $22.32.