‘Throwing a cat among the pigeons’: Perpetual turns from predator to prey

An “opportunistic” takeover bid for fund manager Perpetual has raised the possibility of an alternative direction for the business, analysts say, as the investment firm switches from being a predator to prey.

Amid a trend towards consolidation in funds management, that has already seen Perpetual make a play for rival Pendal, a consortium that includes Baring Private Equity Asia and Regal Partners has now lobbed a conditional, non-binding indicative $30-a-share bid for Perpetual.

Perpetual and Pendal announced a scrip and cash deal in August, after Perpetual’s initial $2.4 billion bid was knocked back in April. Investors have been lukewarm towards that Perpetual-Pendal deal, and analysts on Thursday said the consortium’s offer for Perpetual could turn the table on the tie-up with Pendal.

MST Emerging senior analyst Lafitani Sotiriou said in a note that the takeover offer for Perpetual presented a simple question to shareholders: did they want to pay a premium to Pendal, or would they rather get the premium from Regal?

“We see Regal’s bid as sufficient for Perpetual to engage with, but ultimately Perpetual’s board should seek a higher price,” he said.

Meanwhile, Angus Gluskie, managing director of White Funds management, said the takeover bid created a challenge for Perpetual’s management.

“There’s obviously a range of views in the market as to whether the deal [with Pendal] is a good one or a bad one. This presents an alternative. So, it’s certainly going to make people think about what creates the most value,” he said.

Perpetual’s share price, which had been languishing since the Pendal deal was announced, rose 7.1 per cent on Thursday on the news of the bid to close at $28.82.

Perpetual has rejected the offer, which values the company at $1.74 billion, saying it “materially” undervalued the company. It has also reinforced its intention to push ahead with its plan to buy Pendal, formerly known as BT Investment Management.

Perpetual CEO Rob Adams. The company’s board says that it is “not in the best interests of its shareholders to engage on this offer”.Credit: James Brickwood

“This offer is uncertain and conditional and the Perpetual board believes that it is not in the best interests of its shareholders to engage on this offer and has therefore rejected the offer,” Perpetual said in a statement.

The consortium chasing Perpetual includes Baring Private Equity Asia, which was recently acquired by global private equity firm EQT. Baring made the bid through the BPEA Private Equity Fund VIII. ASX-listed investment manager Regal Partners, run by chief executive Brendan O’Connor and chief investment officer Phil King, recently merged with VGI Partners.

In a statement, O’Connor said that the offer submitted was “compelling for Perpetual shareholders and, importantly, is more attractive than maintaining the status quo and proceeding with the proposed acquisition of Pendal”.

Regal Partners investment chief Phil King. Regal is seeking to acquire the asset management businesses of Perpetual.Credit: Brook Mitchell

According to Gluskie, investors are expecting one or more bidders to pursue Perpetual, putting further pressure on its plans of expand in the market through the Pendal acquisition.

“People need to feel they could get good synergies out of [the deal with Pendal] and create a better strategic position, and I think there were a couple of question marks around that. Whereas this deal, Perpetual is the target in this case, with the potential that there might be additional bidding.”

Morningstar analyst Shaun Ler said if the deal did not proceed, which was unlikely at current prices, Perpetual “could be under some kind of pressure or activism” to potentially look at realising value through some assets sales. “As a shareholder, I’d be thinking it’s too cheap. They have to do something to realise value,” he said.

In a note, Charlie Aitken from stockbroking firm Bell Potter likened the takeover bid to “throwing a cat among the pigeons in Perpetual’s unpopular bid for Pendal”.

“I like this move from Regal, despite Perpetual rejecting it. It shows genuine growth ambition and is well-timed with Perpetual stock at 10-year lows.”

Regal is seeking to acquire the asset management businesses of Perpetual, while BPEA EQT will seek to acquire the corporate trust and private clients businesses.

The firm said it was disappointed the proposal had been rejected, but it will seek to understand the rationale behind the decision and engage with Perpetual’s concerns.

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