The Perpetual Ltd (ASX: PPT) share price has dropped 7% after announcing a multi-billion deal with KKR.
Perpetual is best known as a fund manager, while KKR is a private equity outfit.
Takeover agreed for two Perpetual segments
An affiliate of Kohlberg Kravis Roberts (KKR), and affiliates, will buy the wealth management and corporate trust businesses via a scheme of arrangement (takeover) for A$2.175 billion in cash.
This takeover price represents an “attractive” 13.7x last twelve month (LTM) EBITDA and 16.3x LTM EBIT multiple.
Perpetual had been running a strategic review to decide what to do with its three different businesses. Management think this is a positive and compelling outcome for shareholders as well as clients and employees.
The company will be an ASX-listed, global multi-boutique asset management business with “scale, diversification and a debt-free balance sheet ensuring it is well positioned for organic growth.” The reaction with the Perpetual share price suggests the market doesn’t like this outcome.
Perpetual’s board unanimously recommends shareholders vote in favour of the arrangement, subject to an independent expert concluding the transaction is in the best interests of shareholders.
Ownership of the Perpetual brand will transfer to KKR as part of the transaction. A licencing arrangement will be in place for Perpetual’s Australian equities team to continue to use the brand for a period of up to seven years. Perpetual Group will rebrand by 31 December 2025.
Why accept this offer?
The funds management business said the proposal is superior to alternatives, in terms of price and deliverability.
The cash offer “provides the dual benefits of delivery and cash proceeds” to shareholders immediately when the deal is completed, while also owning the asset management business “which is better positioned to improve performance.”
Another benefit was that the separation of Perpetual’s businesses removes the “conglomerate complexity” which has made it challenging for the market to value the ASX share.
The remaining asset management business had $227 billion of assets under management (AUM) at 31 March 2024.
Final thoughts on the Perpetual share price
Funds management businesses are not loved by the market these days, particularly ones where there have been fund outflows by clients. If I were a shareholder, I wouldn’t want to lose the other two segments, I think Perpetual is a stronger business with them. Plus, it’s losing control of its name, which I’d say is an important part of its reputation.
There are plenty of other ASX shares I’d rather own instead.
