The Perpetual Ltd (ASX: PPT) share price is down 8% from 9 Monday 2024. What’s going on with the fund manager?
Perpetual is one of the largest fund managers in Australia, with assets under management (AUM) of A$222 billion.
Perpetual share pain
The fund manager’s valuation is lower than it was in 2021, which was higher than 2017, which was higher than 2007. The last 17 years have been a period of decline.
Private equity outfit Kohlberg Kravis Roberts (KKR) proposed to buy the wealth management and corporate trust businesses for A$2.175 billion in cash.
The board of Perpetual had unanimously recommended that Perpetual shareholders vote in favour of the takeover deal, subject to an independent expert concluding that the transaction is in the best interests of shareholders.
However, things have taken a sour turn for the Perpetual share price and the chance of the takeover going ahead, largely due to a ruling by the Australian Taxation Office (ATO).
Bigger tax burden
After ongoing and extensive engagement with the ATO, Perpetual has received a written view from the ATO about the tax treatment of the transaction and therefore the estimated net cash proceeds to shareholders if the deal goes ahead.
Perpetual was informed that the entire cash proceeds would be deemed to be an assessable unfranked dividend for shareholders.
The ATO also said the assessed primary tax liability for Perpetual is estimated to be A$488 million. That would mean the previously advised range for taxes and duties of A$106 million to A$226 million would now be A$493 million to A$529 million.
That would mean the estimated cash proceeds for shareholders would reduce from a range of A$8.38 to A$9.82, down to a range of A$5.74 to A$6.42 per share.
Perpetual said it was “extremely disappointed and disagrees with the ATO Commissioner’s views”. The fund manager noted numerous previous transactions that had been undertaken in a similar manner.
Independent expert
Today, the independent expert has informed Perpetual that the risk and magnitude of the increased potential tax liabilities mean that it would not be able to form an opinion that the scheme is in the best interests of shareholders.
Perpetual and KKR are continuing to engage constructively about the transaction, according to the ASX share.
Final thoughts on the Perpetual share price
It seems there are now hurdles that the takeover may not be able to clear. I wouldn’t want to buy Perpetual shares right now with this much uncertainty.
