Perpetual’s deal with KKR now unlikely to proceed: Morningstar
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More news: Morningstar analysts say it is unlikely Perpetual’s transaction to offload its wealth management and corporate trust arms to KKR will proceed in its current form, following tax bill revelations.
Morningstar analyst Shaun Ler said the considerably higher tax bill estimate made the acquisition terms less favourable to shareholders than previously anticipated.
Ler also said it is uncertain if KKR will improve its offer for the businesses given Perpetual’s “apparent urgency to finalise the deal”.
Morningstar, however, left its fair value estimate unchanged at $24.50, assuming Perpetual retained its asset management, corporate trust and wealth management businesses.
Based on the new tax bill, the research house estimated the total value for shareholders from retaining asset management and exchanging its corporate trust and wealth management areas for cash to range between $21 and $22. While this is below its prior estimate of $24 to $25 in August, it is above the current share price.
Perpetual’s share price had plunged 7.58% to $20.25 by 2:46pm AEDT.
What they said: “Shares are currently undervalued, with the market seemingly underappreciating the merits of Perpetual’s diversified business. A potential decline in interest rates could help moderate elevated asset management redemptions,” Ler said.
“There is room to centralize operations and remove duplication from the Pendal acquisition, improving margins. Additionally, CT and WM face less competitive pressure and have more predictable earnings, offsetting potential earnings volatility in asset management.”
Perpetual shares dive on tax bill advice
More news: Shares in Perpetual tanked in early trading on the ASX after the asset manager flagged a substantially higher tax bill in relation to the proposed sale of its its corporate trust and wealth management business to private equity firm KKR.
Perpetual shares were down 7.9% to $20.19 by 10:30am AEDT and has plunged 20% since January.
Perpetual to get hit with substantially higher tax bill from KKR deal
The news: Perpetual said it is "extremely disappointed" after receiving advice from the Australian Taxation Office (ATO) over the tax treatment of the asset manager's proposed sale of its corporate trust and wealth management business to private equity firm KKR, which is expected to slash shareholders' proceeds from the deal.
The numbers: The ATO's ruling means that the transaction will incur taxes and duties of about $493 million and $529 million. This is substantially higher than the previous estimate of between $106 million to $227 million.
Cash proceeds for the transaction will reduce significantly from a range of $8.38 to $9.82 per share to $5.74 to $6.42 per share.
The context: The ATO advised Perpetual that the scheme's entire cash proceeds on disposal of the shares would be deemed to be an assessable unfranked dividend for shareholders and taxed at the applicable rate for each shareholder.
Perpetual said it is "extremely disappointed and disagrees with the commissioner's views", and is engaging with KKR to consider the potential impact on the transaction.
What they said: "Based on the strong advice from relevant tax experts, including senior counsel, and following extensive board testing and consideration, Perpetual continues to be of the view that the provisions should not apply," the company said in a statement.
"Perpetual considers it has strong grounds to dispute this position," it said.
"However, to do so, Perpetual would need to withhold sufficient funds to cover the ATO's asserted corporate tax liability amount from any shareholder proceeds under the scheme until completion of that process, which would be protracted, would only commence once Perpetual was assessed, and there would be no certainty of the outcome."
The sources: ASX announcement, Morningstar research
