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Perpetual motion curbed: 138-year old manager broken up in $2.2B KKR deal
Perpetual has finally given way to the corporate buyout entreaties, agreeing to the sale of its wealth management and corporate trustee businesses to KKR for AU$2.175 billion.
In a notice filed with the ASX Wednesday, ostensibly to inform on the completion of its strategic review, Perpetual’s executive team announced the end of long-time chief executive Rob Adams’ “three-pronged” business model.
“The strategic review was extremely thorough and considered a number of options, involving extensive engagement with several high-quality parties and potential bidders,” said Chairman Tony D’Aloisio.
The slimmed down company will now operate purely as an asset management firm, with its stable of boutiques including Barrow Hanley, J O Hambro, Regnan, Trillium, TSW and Pendal, which it purchased 16 months ago for $1.6 billion.
Perpetual’s asset management business will continue under a new name, which is yet to be revealed, and with new leadership. Adams will retire on completion of the deal, with a new CEO to be recruited.
The demerger will help create a debt-free Perpetual Asset Management entity, the group advised, with remaining net proceeds from the sale (after costs) paid out to shareholders. The $2.175 billion deal represents what Perpetual called an “attractive” valuation of 13.7x LTM (Last-twelve-month) EBITDA.
While KKR has purchased the Perpetual name, the Australian equities asset management team will continue to use the Perpetual moniker under a licensing arrangement for up to seven years. The parent group will be rebranded by 31 December, 2025.
Drawn out process
The KKR transaction comes after a 6-month review conducted with a view to making a serious tilt at splitting up the company in a way that would both benefit shareholders and leave a robust operational entity.
The road to get there, however, has not been an easy one for Perpetual. The financial services provider, whose share price peaked at around $80 in 2007, has faced several takeover attempts in recent years as larger entities sniffed an opportunity to grab a known entity with a reasonable financial services footprint at a depressed price. Perpetual’s share price sits at around $22 at close of trade on Wednesday.
A consortium led by Phil King’s Regal Partners tried to lob a $1.89 billion offer for the company in late 2022, yet the offer was complicated by ongoing talks between Perpetual and its own takeover target, Pendal.
When the Pendal deal did happen, Perpetual was heavily criticised by pundits who believed the group overpaid for its competitor.
Perpetual came closest to being sold in December last year when its biggest shareholder, Washington H Soul Pattinson & Company, which owns about 11pc of the company, tabled a $3.5 billion offer for rest of it, with a view to slicing off the asset management business while retaining the wealth management and corporate trust businesses.
That offer was rejected within 24 hours, with Perpetual saying it “materially undervalued Perpetual, and its Corporate Trust and Wealth Management businesses”.
By accepting what is a comparable, albeit less favourable KKR deal, Perpetual indicated that the Soul Patts offer wasn’t so much light on value, just likely mistimed.
