Perpetual strategy sub-optimal says Datt Capital

Oksana Patron

14 November 2022

The proposed transaction of Perpetual Limited (PPT) and Pendal Group (PDL) will be ‘deeply detrimental to PPT shareholders’ relative to the alternative proposals put forth by Regal Funds and others, according to founder and chief investment officer of Datt Capital, Emanuel Datt.

In the media statement, Datt urged Perpetual’s board to fulfil their fiduciary and statutory duties to its shareholders.

In August, Perpetual and Pendal entered into a Scheme Implementation Deed in which PPT would offer PDL shareholders 1 PPT share for every 7.5 PDL shares held plus a fixed consideration of $1.976, which at the time represented an implied 46% premium to PDL’s ‘undisturbed’ share price.

In early November, Regal Funds in conjunction with global private equity firm, EQT disclosed a competing, superior albeit non-binding offer of $30 a share.

However, this offer was rejected along with a revised offer of $33 a share and PPT disclosed that other competing proposals have been received.

Datt said in the statement that it was speculated as recently as July, that PPT had received an approach worth a potential $1.3 billion for its corporate trust business – with the company consequently confirming two separate unsolicited approaches for this business.

“This is highly material given that prior to Regal’s proposal, PPT’s market capitalisation had dropped to a mere $1.4 billion,” he said.

“The proposed PPT/PDL merger will destroy the embedded, latent value within the existing PPT business and we urge the board to consider and disclose further alternative proposals to the broader market.”

Datt also said that the rationale behind the transaction announced in August was to provide a combined platform that would be greater than the sum of parts and that, at that time of the merger, PDL’s assets under management (AUM) exceeded PPT’s AUM by around 22%.

Following this, to ‘equalise’ this AUM bridge; a fixed cash consideration to the value of around $760 million was to be paid to PDL shareholders as part of the transaction, with the cash component expected to be funded via a debt facility that would encumber the merged entity; with PDL holding 47% of the merged entity whilst existing PPT shareholders holding a mere 53% post transaction.

Datt said the transaction was unpopular with investors and PPT’s stock declined from a price of ~$30 a share to a low of ~$23 a share.

“Markets have shifted materially since the announcement of this transaction, with the majority of major fund platforms experiencing strong outflows. PDL itself has experienced outflows of ~10% of AUM relative to PPT which has experienced outflows of only ~1% of AUM. In retrospect, the basis upon which the fixed consideration was agreed appears to be flimsy and non-commercial in practice,” Datt said.