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Perpetual takeover bid is lower than our intrinsic assessment

Washington H. Soul Pattinson bids $3 billion for Perpetual

Mentioned: Perpetual Ltd (PPT)


The indicative proposal from Washington H. Soul Pattinson, or WHSP, to acquire narrow-moat-rated Perpetual (ASX: PPT) is at a price broadly in line with our $27.50 per share fair value estimate on a stand-alone basis. The proposal was unsurprisingly rejected by Perpetual’s board on the same day, given the lack of any control premium.

Under the indicative proposal, WHSP would acquire 100% of shares in Perpetual and demerge Perpetual Asset Management, or PAM. The consideration of $1.06 billion in the form of WHSP scrip covers the wealth management, or WM, and Perpetual corporate trust, or PCT, divisions.

Perpetual shareholders would also receive an in-specie distribution of shares in PAM via the proposed demerger, which WHSP values at $2.0 billion. WHSP would also assume all of Perpetual's net debt and any stranded group costs. The indicative offer values Perpetual at a total value of $3.06 billion, or $27.00 per share.

With Perpetual’s rejection of the offer, WHSP will likely need to up the bid. Some Perpetual shareholders could find a takeover proposal attractive as it accelerates value accretion and mitigates execution risks associated with its recently announced strategic review.

Right before receiving the indicative proposal, Perpetual announced a strategic plan to divest WM and PCT to focus on PAM. It is now incumbent upon Perpetual management to deliver on its value-liberation objective and show it can find higher bidders for WM and PCT, two businesses we consider to be high-quality assets with maintainable competitive advantages.

For the standalone PAM, the earning stream would be less diversified if WM and PCT were to be divested. While PAM is currently facing challenges affecting most active managers, we expect its FUM to grow through the cycle. Its wide range of products and strategies appeals to a broad range of investors.



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