Following several statements on Thursday, which suggested that relations had soured between Pendal and Perpetual, a minor shareholder in Perpetual has asked the company to dump its intended Pendal merger.
In a statement issued on Thursday afternoon, Datt Capital argued that since the two inked a Scheme Implementation Deed in August, markets had shifted materially making the proposed transaction “deeply detrimental” to Perpetual shareholders.
Under the deal, Pendal shareholders would receive one Perpetual share for every 7.50 Pendal shares plus $1.976 cash per Pendal share. At the time of the offer this represented an implied 46 per cent premium to Pendal’s ‘undisturbed’ share price.
“Ostensibly, the rationale behind this transaction was to provide a combined platform that would be greater than the sum of parts,” said the founder and CIO of Datt Capital, Emanuel Datt.
He explained that at the time of the merger, Pendal’s assets under management (AUM) exceeded Perpetual’s AUM by some 22 per cent.
Accordingly, to ‘equalise’ this AUM bridge, a fixed cash consideration of around $760 million was to be paid to Pendal shareholders as part of the transaction.
The cash component was expected to be funded via a debt facility, with Pendal holding 47 per cent of the merged entity whilst existing Perpetual shareholders would receive 53 per cent post transaction.
“Markets have shifted materially since the announcement of this transaction, with the majority of major fund platforms experiencing strong outflows,” Mr Datt argued.
In retrospect, he said, “the basis upon which the fixed consideration was agreed appears to be flimsy and non-commercial in practice”.
“We urge the board of Perpetual to fulfil their fiduciary and statutory duties to its shareholders,” Mr Datt said.
“It is evident that the proposed Perpetual-Pendal transaction is deeply detrimental to Perpetual shareholders relative to the alternative proposals put forth by Regal and others,” he continued.
Mr Datt cited speculation that as early as July, Perpetual had received an approach worth a potential $1.3 billion for its corporate trust business — with the company consequently confirming two separate unsolicited approaches.
He added: “This is highly material given that prior to Regal’s proposal, Perpetual’s market capitalisation had dropped to a mere $1.4 billion”.
Moreover, Mr Datt argued that the Perpetual-Pendal merger would destroy the embedded, latent value within the existing Perpetual business.
“Whilst a break fee of $23 million may be applicable in the case of the Perpetual-Pendal transaction not proceeding, it is a small price to pay relative to the potential value destruction from pursuing a non-commercial agreement for Perpetual shareholders”.
Fresh media reports on Friday suggested that the companies’ lawyers were gathering at the NSW Supreme Court to discuss Perpetual’s request for a delay.
