On a high level PPT-PDL agreement has several "out" clauses due...

On a high level PPT-PDL agreement has several "out" clauses due to prescribed events, the party that incur the event has to pay the other party $23m in reimbursement fee. If one party simply pull out it is then it is subject to further unspecified liquidated damages charge to the other party. Nominally assuming zero liquidated damage it can be argued the out cost is $23m. However it is not that simple considering both parties have spent much time and effort towards the merger and scheme implementation deeds, the liquidated damages will most likely be settled in court.

Look closer you can also see issues with the Regal deal being a non-binding conditional agreement. The PPT board cannot just throw away the PPT-PDL binding deal to entertain a non-binding agreement. Unless the value proposed is so great the PPT board has to entertain it, even then there will need to be PPT shareholder support and some confidence the Regal deal is likely to succeed. Worst case scenario for PPT is to renege on PDL merger and then for Regal to walk away. Quite the dilemma.

On the next level imagine Regal's perspective. It wants to extract value from PPT to enhance its own business. AFR wrote an excellent article discussing the difference in culture between Regal and PPT. There is no certainty Regal will be better off with such deal. Regal will be hesitant to overpay without some form of assurance the PPT fund managers or clients are going to stay on after the deal. Otherwise Regal will be paying for a useless shell. The corporate trust business can be argued as stable without much effect from the eventual result, but that part of the business is only one part out of the three. PPT has FUM and also private clients components. The FUM and private clients can walk easily.

On the next level imagine PPT-PDL deal from the PPT CEO/MD Rob Adams perspective. He has a plan and ambitions for the PPT-PDL merger, he is personally invested in the deal both on a professional and financial level as he is the CEO of the merged PPT-PDL entity. Regal comes in with an unexpected pitch to buy the PPT business, this disrupts all of Rob's (and maybe the board's as well) plans. The Regal deal is likely to result in Rob and the board lose their roles in the new PPT-Regal entity, so it is unlikely Rob and the board will be motivated to assist Regal. This then leaves Regal forced to pay more to get shareholder support. It can be argued Rob made a bad deal on the PPT-PDL merger proposition, but that is all the more motivation for him to complete the merger and prove the naysayers wrong.

I feel the deck is stacked against Regal to actually take over PPT. Regal stirred a hornet nest with the initial $30 offer, it would be prudent for it to leave now as it has already achieved lots of non-financial goals such as highlighting PPT-PDL merger as a bad deal initiated by PPT's management/board. If Regal goes ahead and up the price it will risk a bad deal that may leave Regal vulnerable in the aftermath.

DYOR