Out of the blue a private equity attempt to snaffle listed funds manager and trustee, Perpetual Ltd, with no real rationale given for why the deal should be done.
US private equity giant Kohlberg Kravis Roberts was revealed as the bidder in a statement from Perpetual yesterday.
The offer is at a premium of more than a quarter of its market value.
Perpetual said its board hadn’t formed a view on the bid and recommended shareholders take no action, according to a statement to the ASX.
The statement said the approach was for all of Perpetual’s shares is via a scheme of arrangement at a price of $38-$40 a share, compared with last Friday’s close of $30.97 (this is another offer that didn’t leak into the market via the investment banker/adviser route).
The suggested offer range is very cheap on an historical comparison.
Perpetual shares were at this level in January of this year and again in October a year ago.
Perpetual shares leapt more than 27% to a day’s high of $39.39; they then retreated to end up 22% at $37.80, a gain of $6.83 on the day.
Shares of rival asset managers Platinum Asset Management Ltd. rose 6%, and BT Investment Management Ltd added 2.5%.
The wider market was off around 0.8%.
The non-binding proposal from KKR values Perpetual at almost $1.75 billion.
Perpetual said the offer was ”indicative, incomplete, conditional, and non-binding”.
”The Perpetual Board has formed a Board sub-committee to consider the indicative proposal,” Perpetual said in the statement.
”The sub-committee is led by Peter Scott, Perpetual’s Chairman-elect.
”The Perpetual Board has not formed a view with respect to the indicative proposal and recommends that shareholders take no action at this time in relation to their Perpetual shares.”
Perpetual said it had retained Goldman Sachs as financial adviser and Freehills as legal adviser on the potential deal.
The company said it would make a further announcement at the earliest possible date.
Just why KKR wants Perpetual is hard to understand, it is a business built on the confidence of the clients in its funds managers and service they get from Perpetual.
Perpetual’s shares rise and fall with the rise and fall of the stockmarket.
If it is loaded up with debt, as private equity deals do, it won’t perform any better, even privately-owned.
It’s a service industry and the funds under mandate from clients can quite easily walk to a dozen other managers around the country if they are uneasy with KKR’s arrival or performance if the bid is successful.
And the biggest assets are the fund managers who turn up every day, pick stocks and go home. There is no real estate or other businesses, apart from the custodian and trustee side that can be monetised in a conventional way.
If one or two fund managers walk and performance flags, then there’s nothing KKR can do.
There are two funds managers at Perpetual, John Sevior and Matt Williams, who are the stars and run the huge Australia Fund. Keeping them happy and on board will be key to whether KKR can succeed.
The funds management business made $49.1 million of Perpetual’s 2010 profit of $80 million.
And one final point: this bid is being made with the Australian dollar close to parity, meaning that in US dollar terms it is very, very expensive.
KKR would have to believe that the dollar is not going to fall very far in the next year or so to make a bid at this level with depreciating US dollars.
An offer in March to May would have been significantly cheaper in both $A dollar and $US dollar terms.
A sudden sell-off in the Aussie dollar in the next month or so could very well ruin the bid.
The Aussie dollar has now fallen more than 1.4% in a day after hitting parity on Friday night.
