Perpetual shares up 7 percent on Washington Soul Pattinson take-over offer

About Perpetual

Perpetual Limited (Perpetual, the Group, ASX:PPT) is a diversified financial services business established in 1886 by a group of businessmen including Sir Edmond Barton who later became Australia’s first Prime Minister. Perpetual has been listed on the ASX since 1964 and today has about $212 billion in Assets Under Management. Perpetual provides Asset Management, Private Wealth, and Trustee Services to domestic and international clients, across Australia, Asia, Europe, UK and the USA. Perpetual Asset Management provides investment products and services to globally.

Proposal to acquire 100 percent of Perpetual

Washington H. Soul Pattinson and Company (WHSP or Soul Pattinson) is offering to acquire 100 percent of Perpetual shares in a deal that seeks to separate the Asset Management business from the Private Wealth and Trustee Services businesses.

Under the proposal, WHSP would undertake a simultaneous de-merger of Perpetual Asset Management, which would become a separately ASX-listed entity, enabling the combined Private Wealth and Trustee Services businesses to be absorbed into WHSP. The offer consideration for the Private Wealth and Trustee Services businesses comprises Soul Pattinson shares worth $1,060 million, as well as responsibility for all Perpetual Group net debt and stranded costs. The de-merger of Perpetual Asset Management would be by way of an in-specie distribution of shares to existing Perpetual shareholders. Accordingly, Perpetual shareholders will continue to own shares in the de-merged Perpetual Asset Management which will become a separately ASX-listed entity worth an estimated $2,000 million. The combined offer consideration implies equity value of $3, 060 million, representing value of $27 per Perpetual share. This is a meaningful premium to Perpetual’s closing share price on 13 November 2023 when WHSP provided Perpetual with its substantial shareholder notice advising that it had increased its shareholding to 6.6 percent.

Given the complexity of the proposed arrangement, a Scheme of Arrangement is the most appropriate mechanism by which to effect the simultaneous de-merger and WHSP’s acquisition of a restructured Perpetual Limited.

Strategic Rationale of Offer

Four years ago, Perpetual announced a strategic growth plan that included global diversification and the intention to build scale with a particular focus on the Australian-based Asset Management business. Since that time the Asset Management business has increased Assets Under Management from A$27 billion in FY19 to A$212 billion in FY23. The Asset Management business had a

disappointing FY23 result with under-performance in certain strategies, contributing to $8.1 billion in net outflows over the period.

WHSP believe that a separately listed Perpetual Asset Management with a singular management focus best positions the business for asset growth in the global asset management sector and to benefit from the annualised synergies of the Pendal integration, without the burden of leverage.

The attraction of Perpetual’s annuity-style earnings streams from the Private Wealth and Trustees Services businesses is the other appealing feature of the proposed acquisition by WHSP.

Separation of Perpetual’s Asset Management business, while simultaneously combining the Private Wealth and Trustee Services businesses with WHSP, will create a more diversified investment company, that is more liquid than either existing Perpetual or WHSP stock on a stand-alone basis, enhancing shareholder value of an expanded WHSP in the near-term.

What’s next?

WHSP’s scrip offer, although meritorious, does not include cash, and at the very least, the takeover offer will require that Perpetual shareholders have the option to accept cash as an alternative to WHSP scrip. With more than $900 million in cash on hand at the end of the September 2023 financial year and significant borrowing capacity, WHSP can readily fund a cash component as part of an amended offer.

This appears a likely outcome of the negotiations to be held over coming weeks, especially since WHSP’s proposal to separate the Perpetual businesses has already been proposed by the Perpetual board as a value-enhancing strategy. This leaves the Perpetual board in a ‘strategic cul-de-sac’ in terms of their takeover defence.