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Analysts see merit in Perpetual bid
Asset manager Perpetual has made a bold $2.4 billion takeover bid for asset manager Pendal, which it says would create a “leader in the Australian asset management market”, and analysts are upbeat on the deal, with some saying a higher bid could emerge.
Perpetual has launched a conditional, non-binding proposal to buy 100 per cent of Pendal’s shares for an indicative price of $6.23 per share, made up of one Perpetual share for every 7.5 of Pendal’s plus $1.67 per share cash on top. The offer was made at a premium of 39 per cent to Pendal’s April 1 closing price. The proposal would see Pendal’s shareholders own 48 per cent of the merged entity and Perpetual own the remainder.
Perpetual said the proposed merger aligned with its strategy to grow its business globally and would create a leading asset manager and deliver $50 million in synergies a year on a pre-tax basis, subject to due diligence.
“Under the proposal, these two highly complementary businesses would combine to create a leading global asset manager with significant scale, diversified investment strategies, strong ESG capabilities and a world-class global distribution network, complemented by high quality wealth management and trustee businesses,” Perpetual said.
“The combined group will be well placed to grow its asset management businesses across all key markets and channels, gain improved leverage and scalability across a unified business platform, delivering high quality client service, greater innovation, whilst meaningfully enhancing the growth profile of both companies.”
Pendal’s board said it would review the offer but noted the ongoing share market volatility undermined the value of the deal for its shareholders.
“The Pendal board notes that the indicative proposal has been put forward at a time when significant geopolitical instability, the economic impacts of the ongoing COVID-19 pandemic and broader market volatility has disrupted the global markets in which Pendal operates.
“This has materially impacted the trading values of global asset managers which may not currently reflect their long-term potential to deliver attractive returns to investors,” the Board said in a statement.
“The Board will consider all of these factors to ensure it acts in the best interests of shareholders as it assesses the Indicative Proposal as well as assessing alternative opportunities for Pendal.”
Pendal’s share jumped on the news to around $5.35 from around $4.45 after sinking to a year low of $4.04 last month. Perpetual shares dropped from around $34.40 to around $32.00 after the bid was confirmed to the market on April 4, but have since rebounded to around $33.00.
Analysts said the merger, if successful, made sense for Perpetual and its international expansion plans.
“We think Perpetual’s indicative offer for Pendal aligns with Perpetual’s aim of diversifying its business, materially increases scale and earnings outside of Australia, and could deliver around 15 per cent earning per share (EPS) accretion,” Morgan Stanley analysts said in a research note.
According to Ord Minnett, Perpetual is capitalising on a significant derating in Pendal’s share price, possibly reflecting Pendal’s recent flows and market pressures “which have not been as apparent for Perpetual.”
“The offer is a significant premium to Pendal’s latest closing price, although in our view it doesn’t offer Pendal shareholders much in the way of a premium versus peers. For Perpetual, we estimate the deal would be accretive, noting we think the cash payment would be funded through debt as well as synergy benefits of $50 million pre-tax,” Ord Minnett brokers said.
Ord Minnett has maintained its ‘Accumulate’ recommendation on Perpetual with a $38.00 target price, while it has a ‘Buy’ recommendation on Pendal and has raised its target price to $5.75 from $5.50.
Analysts at Morgans too are updated on the deal. “We see strategic merit in the combined group, with a reasonable chance of the merger proceeding… [The merger] should extract significant cost synergies and provide [to Perpetual] the ability to leverage scale benefits in offshore markets.
“Whilst there is a solid upside to the offer price (>12%) and the potential for the offer to be improved, Pendal is trading within the range of our valuation ($5.65). Pendal’s near-term flows outlook remains subdued and in the absence of the offer, we see better risk/reward elsewhere in the sector.”
