Perpetual's deal with KKR 'probably now dead': analysts
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The news: Perpetual's proposed sale of its corporate trust and wealth management businesses to KKR is now in doubt, according to analysts from Morgan Stanley, Citi, Bell Potter and Morningstar, after the asset manager flagged a substantially higher tax bill from the transaction.
The numbers: Perpetual shares were down 1.1% to $19.85 by 12:25pm AEDT, having slid 8.4% after revealing the ruling by the Australian Taxation Office on Tuesday.
The ATO's decision means that the transaction will incur taxes and duties of about $493 million and $529 million, 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: Bell Potter analyst Marcus Barnard said he suspects that the tax liability will not be acceptable to a majority of shareholders.
"We conclude the demerger and sale to KKR as proposed, is probably now dead, with [Perpetual] likely to retain these businesses," Barnard said.
Citi analyst Nigel Pittaway said the ATO's ruling "looks extremely unfavourable for the deal's prospects".
"This would see significant tax leakage from the deal and it seems highly unlikely to proceed in the originally proposed form," he said.
Morgan Stanley analyst Andrei Stadnik agreed that the increased tax leakage lowers the likelihood of the sale completing given it is subject to shareholder approval. The lower potential net sale proceeds make Perpetual's current combined structure more attractive for shareholders, he said.
The sources: Morgan Stanley research, Citi research, Bell Potter research
