Perpetual will sell its name, along with its prized wealth management business to private equity investor KKR for $2.175 billion and focus on a streamlined asset management function, but the deal has received blowback from shareholders unhappy with a lack of detail.
Perpetual’s corporate trust business will also be part of the KKR deal, with proceeds being used to pay off debt for the group which was worth $771 million as of the end of April and the rest returned to shareholders.
Announced to the ASX after a trading halt on Wednesday morning, the deal is still subject to shareholder approval with a target to be completed by February 2025.
The re-branded Perpetual Asset Management will enter a brand licensing arrangement with KKR for the Perpetual Australian equities teams to continue to use the name for a period of up to seven years. There will be no cost to the asset manager for the first five years of the deal, but “market cost” for the final two years.
Group managing director and CEO, Rob Adams will retire after the transition of the deal, while non-executive director Greg Cooper has been appointed as deputy chair to assist the board with the asset management business and will chair a sub-committee to recruit a CEO.
Cooper is also a non-executive director of CFS, the wealth management business that KKR acquired a 55 per cent stake in from Commonwealth Bank in late 2021.
“Following a comprehensive process, the board has determined that becoming a pure-play global asset management business through a demerger, combined with the separation of the wealth management and corporate trust businesses, will provide superior value for shareholders,” Perpetual said in a statement to the ASX.
Shareholders will be informed of estimated cash proceeds during Perpetual’s FY24 results, which will be posted in August.
The acquisition price represented a valuation of 13.7 times EBITDA (earnings before interest, taxes, depreciation, and amortisation which was $158.3 million) and 16.3 times EBIT (earnings before interest and taxes, which was $133.5 million) based on the last 12 months.
Vote of no confidence
During an investor call later on Wednesday morning, investors expressed displeasure at the lack of detail given for the pricing of the deal.
MST Financial analyst Lafitani Sotiriou criticised the deal asking what estimates were provided to the board for the separation costs and tax bill.
“I’m not sure if this is a joke, but are you guys here to tell us today to trust you with this deal and not provide a bunch of key information?” Sotiriou said.
“But frankly, sorry, the market did trust you with the Pendal deal and we saw how that worked out. In case you’re wondering, we don’t trust you.”
He said this was key information that was required for the market to be fully informed on the deal.
“Because you’ve clearly got a number, you’ve done some estimates, you’ve provided it to the board,” Sotiriou said.
“Can you tell us what that number is. You’ve come out to the market saying this is the best deal on the table but you can’t even tell us what it is.”
Shaw and Partners financial adviser Tony Mitchell said he had been in the industry 45 years and had never seen a transaction where people leading the company couldn’t provide basic information about a deal.
“How can you recommend a transaction where the basic fundamentals are not known?” Mitchell said.
“You must be able to give us some idea of the tax. You people would be shareholders too. If you weren’t on the board and wouldn’t you be astounded that a company of your size can’t provide this basic information?”
Perpetual chair Tony D’Aloisio said the shareholder vote is six to eight months away and there should be all relevant information before them at that point.
“I’m apologise, we’re not in a position to provide that today,” he said.
Future of wealth
After The Australian Financial Review foreshadowed the deal last week, Perpetual informed the market it would announce the future of the wealth management business at the conclusion of the strategic review.
The deal follows Perpetual’s acquisition of Pendal in the second half of 2022 in a business environment where asset managers are fighting to justify charging higher fees than their passive competitors without generating the alpha to justify the premium.
The global asset manager managed $227 billion as at the end of the March quarter.
