Morningstar calls Platinum merger with L1 ‘sensible’
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The news: Morningstar analyst Shaun Ler has ascribed a "100% probability" to Platinum Asset Management's proposed merger with L1 Capital proceeding, and called the deal "sensible for a business facing organic decline like Platinum".
The numbers: Morningstar has retained its fair value estimate for the combined entity, which will be named L1 Group, at 70 cents per share.
Under the proposed terms, L1 Capital's shareholders would own around 74% of L1 Group, with existing Platinum shareholders retaining around 26%.
Platinum shares last closed at 75 cents and over the last 12 months have plunged 24.2%.
The context: Platinum will hold an extraordinary general meeting on 22 September for shareholders to vote on the proposed merger with L1. Platinum's board have unanimously recommended the merger.
What they said: "The merger with L1 Capital would arrest Platinum's earnings decline by combining with another asset manager with better-performing products enjoying inflows, while allowing duplicate costs to be cut," said Ler.
"Ultimately, the merger is a good deal for Platinum shareholders, in our view, with the combined entity having room to reduce costs through personnel reductions, consolidation of middle and back-office functions, and rationalizing overlapping infrastructure.
"The group can also spread out rising compliance and technology costs across a larger pool. The combined entity will have greater asset class and client diversity, facilitating cross-selling and customer retention."
The source: Morningstar research
