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The board of financial services group Perpetual (ASX: PPT) has turned its nose up at a $3 billion takeover and demerger deal from Washington H. Soul Pattinson and Company (ASX: SOL), unattracted by the consideration in SOL shares while claiming the offer devalues two of its core businesses.
After the market closed yesterday, SOL - commonly known as Soul Patts - announced that on 21 November it had submitted a non-binding, indicative offer to acquire 100 per cent of issued shares in Perpetual via a scheme of arrangement alongside a simultaneous demerger of Perpetual Asset Management.
The structure of the deal would mean that Soul Patts would hold 100 per cent of the Perpetual Wealth Management (PW) and Perpetual Corporate Trust (PCT) businesses in exchange for $1 billion worth of its own shares.
At the same time, shares in the demerged entity Perpetual Asset Management (PAM) would be distributed in-specie to existing Perpetual shareholders at an implied value of $2 billion.
The suitor highlighted its indicative proposal represented value of $27 per Perpetual share - a 28.6 per cent premium to the undisturbed closing share price of $21 before the discussions began.
Soul Patts' announcement followed an announcement yesterday morning that Perpetual would be 'exploring the benefits of unlocking additional value for Perpetual shareholders through separation of its Corporate Trust and Wealth Management businesses and creating a more focused Asset Management business'.
The suitor, which is already a large shareholder in Perpetual with around a 9.9 per cent stake, noted its offer constituted an enterprise value of more than $3.5 billion.
But at 7:09pm last night, Perpetual revealed to the market that it had rejected the proposal following confidential discussions with Soul Patts.
Perpetual rejected the offer on the grounds that it would need to demerge the asset management business, and that it "materially undervalues" Perpetual and its corporate trust and wealth management businesses.
"It introduces significant execution and operational risk over a protracted implementation period, and consequently may have negative value implications for Perpetual shareholders," the company added in an announcement to the ASX.
"The Board has, together with its advisers, carefully considered the Indicative Proposal and unanimously determined that it is not in the best interests of its shareholders and therefore has rejected it on the same confidential basis as it was provided to Perpetual.
"Perpetual has three high-quality, unique businesses that have attracted market interest from time to time. As announced this morning, Perpetual believes there is merit to exploring the separation of Perpetual’s businesses as part of a strategic review. The Board remains focused on exploring options to maximise shareholder value."
Soul Patts claimed the indicative proposal would provide a mechanism for all Perpetual shareholders to "realise a premium value for WM and PCT, while retaining exposure to a separately listed PAM".
"A singular management focus on PAM positions the business to deliver growth in the global asset management sector, and to benefit from annualised synergies of the Pendal integration without the burden of leverage," the company said.
"In WHSP, Perpetual shareholders will not only continue to benefit from WM and PCT’s annuity-style earnings streams, but also gain exposure to a broader, more liquid stock backed by a diversified portfolio of quality assets, a net cash position, and a focus on wealth creation for retail shareholders."
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