In a statement on Monday, Perpetual said an independent expert’s report has led Perpetual’s board to withdraw support for the scheme with KKR, terminating the agreement without a break fee, despite KKR’s claims for damages.
Perpetual’s board aims to maximise long-term shareholder value by retaining its high-quality businesses and advancing its 2024 strategic review while progressing with the business separation, as well as operating a new model for asset management and cost-cutting initiatives already in motion, the asset manager said in an ASX listing.
“In the period since the announcement of the Australian Taxation Office’s (ATO) feedback in December, Perpetual and KKR have engaged extensively, including on revised non-binding indicative proposals received from KKR,” Perpetual said.
“Despite constructive engagement, no alternative transaction has been agreed. After thorough review and the extensive period of engagement, the board has determined that the value and terms of those revised proposals, including the various conditions included, were not in the best interests of shareholders and discussions have now ended.”
Alongside the business separation and strategic review, Perpetual’s board intends to pursue the sale of its wealth management business, the firm said, with the proceeds from the planned sale intended to be used to strengthen the group’s capital position, as well as support investment in organic growth.
Perpetual’s CEO and managing director, Bernard Reilly, said: “After extensive review of the options available to Perpetual shareholders, we believe this is the right course of action to deliver long-term value for our shareholders. My conviction in the quality, performance and growth opportunities across all of our businesses has only increased since I joined Perpetual in September last year.
“Today’s path forward retains earnings diversification in the near term while we work toward implementing a leaner, more simplified operating model with three very focused businesses that can deliver better returns and with a stronger balance sheet to support investment in growth over time.”
Perpetual also advised that it has incurred $42.6 million in transaction and separation costs for the 12 months ending 31 December 2024, with an additional $24.4 million for the six-month period, to be recorded as significant items in its 1H25 results.
Moreover, the firm said Gregory Cooper will now officially take over as chairman from Tony D’Aloisio on 27 February, following the completion of the 1H25 results.
Back in December, when Perpetual first alerted the market that the expected tax bill from the proposed sale to KKR was considerably higher than initially estimated, Morningstar said “we think there is a low likelihood of the transaction proceeding in its current form”.
In a market note at the time, Morningstar said: “These updates make the acquisition terms less favourable to shareholders than previously anticipated.”
The updates in question included Perpetual's revised tax liability which after an ATO review jumped to $493–$529 million, up from $106–$227 million, lowering shareholder proceeds to $5.74–$6.42 per share, down from $8.38–$9.82 per share.
“We think shareholders would be better off if the sale of CT and WM doesn’t proceed,” Morningstar said in December, but cautioned that if the transaction is halted, Perpetual will retain about $686 million in debt, which could disappoint shareholders hoping for capital returns.
It, however, pointed out: “Perpetual’s capital-light, cash-generative business model should allow for gradual deleveraging without external financing.”
Morningstar has long supported Perpetual, with its equity analyst Shaun Ler noting last month that the market is pricing in "an excessive deterioration" in Perpetual's future cash flow generation, and seemingly underappreciates the "merits of its diversified business".
"A potential decline in interest rates could help moderate elevated asset management redemptions," Ler said. "There is room to centralise operations and remove duplication from the Pendal acquisition, improving margins".
"Additionally, its corporate trust and wealth management businesses face less competitive pressure and have more predictable earnings, offsetting potential volatility in asset management," Ler added.
Perpetual's share price finished over 2 per cent down on Monday.
