Perpetual grilled on tax liability estimates
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More news: Analysts have grilled Perpetual’s management on its deal with KKR as the asset manager did not provide “basic information” on tax liability when announcing the transaction.
During an investor call regarding the acquisition of Perpetual’s corporate trust and wealth management arms, Perpetual chair Tony D’Aloisio and outgoing CEO Rob Adams were asked by an analyst whether the deal was a “joke”.
“I'm not sure if this is a joke, but are you guys here to tell us today to trust you with this deal and not provide a bunch of information? Frankly, sorry the market did trust you with the Pendal deal and we saw how that worked out,” an analyst said on the call.
Similarly, another analyst said: “I can’t for the life of me figure out how you can recommend a transaction where the basic fundamentals are not known”.
Multiple analysts queried the company on what the tax liability and stranded cost estimates were following the deal to which D’Aloisio said that Perpetual was not in a position to provide the figures for. He noted that the shareholder vote on the transaction was six to eight months away and there would be “ample opportunity to” provide further information.
Perpetual chief financial officer Chris Green said the issue with not being able to provide a tax liability estimate was that there needed to be a reorganisation of the businesses to get the wealth and trust arms into a holding company.
“[The reorganisation] involves the interposition of a holdco between shareholders and Perpetual that will be subject to a form of tax rollover which recognises that there's no realisations of interest occurring under that,” Green said.
“And that would have the effect that the tax consolidate group can't be headed by Perpetual will continue with that holdco substitute as the new head company. So yes, we are seeking rollover relief in within this transaction for Perpetual.
Green noted that the company was also applying to get rulings for rollover relief from the tax office and was the reason they could not give estimate figures.
“We are seeking rollover relief for the new structure that's been being put in place as part of the transaction to allow the asset that the shares in that holdco to be acquired by KKR from shareholders directly. And we are seeking rollover relief on that,” he said.
“The shareholder position in relation to the demerger of the asset management business — we're subject to a separate tax ruling.”
During the call Green also said that Perpetual had entered into a brand licensing agreement with KKR for the Perpetual Australian equities teams to continue to use the Perpetual brand for up to a period of seven years. The first five years would be cost free while the sixth and seventh year would be a market based licensing fee if they determined they wanted to keep using the brand.
He said the ASX-listed Perpetual would rebrand by December 2025.
Perpetual shares have dropped 7.75% to $22.17 by 12:19pm AEST, and over the last 12 months has fallen 11.67%.
KKR to buy Perpetual corporate trust and wealth arms for $2.2b
The news: Perpetual has confirmed that private equity firm KKR will acquire its corporate trust and wealth management businesses and that its group managing director and CEO Rob Adams will retire.
The numbers: The deal will see KKR acquire the two businesses for $2.175 billion. which Perpetual said was 13.7x the last 12 months EBITDA and 16.3x the last 12 months EBIT.
Completion of the deal is anticipated to occur in February 2025, subject to a Perpetual shareholder vote and customary conditions.
The context: The deal comes after a six-month long strategic review of the two arms, which resulted in the board determining that becoming a pure-play global asset management through a demerger would provide superior value for shareholders.
On completion of the transaction, shareholders would continue to own Perpetual Limited shares, which it said would be debt-free and manage $227 billion in assets.
The proceeds of the deal would be determined after pay down of Perpetual Group debt, as well as separation and transaction costs. The estimated cash proceeds to shareholders would be communicated to shareholders at Perpetual’s FY24 results in August 2024. The board has unanimously recommended that shareholders vote in favour of the scheme.
Adams will retire following a period of transition upon completion of the transaction. Non-executive director Gregory Cooper has been appointed as deputy chair to assist the board with the asset management business and will chair a subcommittee to recruit a new CEO of asset management.
What they said: Perpetual Group chair Tony D’Aloisio said: “The strategic review was extremely thorough and considered a number of options, involving extensive engagement with several high-quality parties and potential bidders. KKR offered both compelling value for shareholders as well as the highest degree of certainty in relation to the funding, executive and the ability to work with Perpetual to deliver a successful outcome”.
Adams said: “The combination of Perpetual’s Australian asset management business and the acquisitions of Trillium, Barrow Hanley and Pendal, has created a high-quality global firm. As a standalone business, it will be leaner, more agile and fully focused on enabling our highly respected investment professionals to continue to deliver strong returns to clients, whilst presenting long-term growth opportunities for our shareholders”.
“... I believe that it is the appropriate time for fresh leadership and renewed focus on driving that growth over time,” Adams said regarding his retirement.
The source: ASX announcement
