Vultures circle to pick up Perpetual wealth division
Perpetual CEO Bernard Reilly says the firm is “very confident” it will be able to divest its wealth management business quickly following the termination of the KKR deal.
The firm had been due to divest its wealth management and corporate trust business to KKR, but the deal fell through after the ATO announced the deal would be subject to high tax treatment that would mean the deal was no longer in the best interests of shareholders.
However, Perpetual said in its half-year results that it is still eager to pursue the divestment of its wealth management business.
Asked on a shareholder webinar about whether the firm had any potential buyers for the wealth division, Reilly said the news of the KKR deal collapse on 24 February had prompted eager bidders to emerge.
“You can imagine with the announcement on Monday, there have been a number of inbound calls,” Reilly said.
“Part of the reason is that we have had extensive interest in the business over the past 2-3 years. We’ve not been able to engage with them during the course of the SID [scheme implementation deed] with KKR but there is significant interest in the business, it’s a high quality leading business in Australia so we are confident in the interest.”
Having lost time on the KKR deal, Reilly said he is keen to proceed with the divestment as soon as possible.
“We aim to execute this as quickly as we can, we are not going to go for the fastest transaction, we are going to go for the best transaction and that process will commence very quickly,” Reilly said.
Commenting on the potential transaction, Morningstar equity analyst Shaun Ler said it will be of highest priority for Perpetual to secure a good price for the asset in order to repay debt.
“The company is engaging potential buyers, though we have mixed views about this decision. This is as we expect wealth management to generate returns above our 9 per cent cost of capital assumption, and any sale proceeds will be directed toward debt repayment – primarily from the Pendal acquisition,” Ler said.
“Our implied valuation for wealth management is around $475 million, and securing the highest possible takeover premium is crucial.”
Reilly also described how Perpetual is embarking on a product rationalisation of its fund range within asset management.
This is particularly necessary for J O Hambro Capital Management (JOHCM) that made up the majority of asset management outflows during the half in its global and international equity strategies and Perpetual said there had been “challenging flow patterns” for some strategies.
Stabilising JOHCM is one of four asset management priorities for the firm, it said, alongside confirming the future operating model, rightsizing the cost base, and resetting the distribution strategy.
Reilly said: “We’ve undertaken some pruning work already on strategies that have been underperforming or are sub-scale and losing money. Those that are sub-scale haven’t attracted interest in the market to grow so that’s why we would close those.
“On the performance side, poor performance makes it difficult to sell a strategy. We’ve done some of this already in the first half. It’s been a combination of reducing funds and merging funds.
“If a strategy has performed poorly and is sub-scale, you will struggle to sell that in the future so you need to close that down. If it is poorly performing and is at scale, you focus on retaining the assets and turning the strategy around.”
AUTHOR
Laura Dew
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