Perpetual board’s ‘not going to be the master of their own destiny’

Perpetual’s shares rose strongly on the expectation of a potential higher takeover offer from Washington H. Soul Pattinson that would break up the group, while former star employees were critical of the financial services company’s board and management.

Perpetual shares rose almost 7 per cent to $25.35 yesterday, after its board rejected the $3 billion bid from Soul Patts, stating it materially undervalued the company.

Soul Patts chairman Robert Millner declined to comment when contacted about market speculation the group might make a higher bid. Its existing all-scrip bid valued Perpetual at $27 a share. Soul Patts, which is the largest shareholder in Perpetual with a 9.9 per cent stake, has its annual meeting on Friday.

Robert Millner chairman of Washington H. Soul Pattinson.Credit: Peter Rae

Perpetual’s board and management announced a strategic review after rejecting the bid. It said it would consider splitting off the company’s corporate trust and wealth management divisions to create a more focused, pure-play funds management business.

Perpetual was founded 137 years ago by a group of businessmen who included Sir Edmund Barton, who would later become Australia’s first prime minister. It offers private wealth and trustee services, and has a funds management arm with $200 billion under management.

“The board and management have got the company into a situation, by virtue of strategy and financial position, where they’re potentially not going to be the master of their own destiny. The company’s now likely in play,” said John Sevior, who worked at Perpetual for 17 years and was its head of equities, before he co-founded Airlie Funds Management.

Perpetual’s share price has fallen 39 per cent since Rob Adams was appointed its chief executive in September 2018.

Following his appointment, Adams has undertaken a number of acquisitions including the $2 billion purchase of rival funds management group Pendal, which has left Perpetual carrying $734 million in long-term debt.

In 2022, Perpetual’s board and management rejected a $33 a share cash offer from a consortium led by Regal Partners and BPEA private equity, which was conditional on it not acquiring Pendal.

Peter Morgan, who worked at Perpetual for 13 years, including also as a head of equities, said the jury remained out on the Pendal acquisition. “The Perpetual name is still very good, but the company’s balance sheet is weak, and they need to fix it.”

Morgan was critical of the board and management for making multiple acquisitions that left the group debt-laden. “They’ve got a handicap with $700-odd million in debt.”

He questioned if Perpetual’s board of directors owned more of the company’s shares whether they would have backed the deals. “I’d argue they wouldn’t. It’s easy to pay with other people’s money.”

Morgan said some of the acquisitions had made the funds management business more global and complicated, and in his opinion less attractive to potential acquirers. He said in a people business such as funds management, culture is critical, and bedding down multiple acquisitions put such a culture at risk.

Perpetual was contacted for comment.

Sevior, who retired this year from Airlie Funds Management, said Perpetual had “a wonderful culture and heritage of modesty and humility that was respectful of the privilege of managing other people’s money”.

Perpetual chief executive Rob Adams.Credit: James Brickwood

Most stockbroking analysts’ research notes did not back the Soul Patts offer.

Morgan said if Soul Patts did return with another bid, it needed to simplify the offer. “I honestly don’t know why they don’t go down the path of building a stake and attacking from there, and put someone on the board. There’s nothing to stop them from putting someone on the board and wearing the board down and have them make sensible decisions.”

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