The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), or WHSP, share price is on watch after launching a takeover bid for Perpetual Ltd (ASX: PPT).
Perpetual is one of the biggest fund managers in Australia, while WHSP is an investment house which has investments in various industries.
Takeover bid
WHSP is trying to buy the rest of the Perpetual shares it doesn’t already own – it currently has a 9.99% stake.
Perpetual announced earlier today it’s exploring a potential separation of its corporate trust and wealth management businesses from its asset management business.
WHSP is suggesting it will buy Perpetual and simultaneously demerge Perpetual Asset Management and distribute that business to Perpetual shareholders. WHSP would retain 100% of the Perpetual Wealth Management and Perpetual Corporate Trust businesses in exchange for WHSP shares, as well as “assume responsibility for all group net debt and stranded group costs.”
WHSP said this transaction would provide “a unique opportunity for Perpetual shareholders to unlock value in a tax efficient structure while retaining exposure to each of Perpetual’s three businesses.”
What’s the offer price?
According to WHSP, the proposal implies an equity value of $3.06 billion – that’s $1.06 billion of WHSP shares of Perpetual Asset Management shares worth an estimated $2 billion.
This offer represents a value of $27 per Perpetual share, which WHSP said was a 28.6% premium to the ‘undisturbed’ share price of $21 on 13 November 2023.
After adjusting for the liabilities that WHSP will take on, and excluding the value of PAM, the implied value for the other two businesses is supposedly $1.885 billion, representing a 56.4% premium to $1.2 billion – this is the implied value of the other two businesses based on “Perpetual’s current market capitalisation after adjusting for the aforementioned liabilities and excluding PAM, as at 13 November 2023.”
Why the bid?
WHSP explained:
WHSP believes the complexity of the Perpetual Group, together with the current market backdrop and Perpetual’s high financial leverage, is weighing on the [Perpetual] share price and constraining Perpetual’s strategic flexibility.
The acquisition would provide further diversification to WHSP’s portfolio and increase exposure to financial services. The indicative proposal demonstrates WHSP’s ability to unlock value through a creative, flexible and long-term approach.
My thoughts on this
It’s certainly not a typical takeover offer, with the prospect of splitting up Perpetual, and WHSP taking on all of the liabilities.
WHSP must really like the two businesses it’s bidding for to make this approach, and believe it can extract a lot of value.
I can see the Perpetual share price rising after this, but I’m not sure what WHSP shareholders will make of this – it’s a lot of new shares being offered. Perhaps WHSP management think the WHSP share price is highly priced at the moment, so it’s a useful bargaining chip to use to fund the deal.
It’ll be interesting to see how this plays out.
