Ann: Rejection of revised non-binding indicative proposal, page-15

The rebuffed offer for Perpetual has put the storied investment group in the spotlight as a potential break-up play, according to its former equities chief Peter Morgan.“There is a good chance the Perpetual board will do the classic stonewall we know best, but the imagination has been lit,” said Mr Morgan, who ran the local equities division in the 1990s until 2002.When he left to set up his own fund, funds under management had grown to $12 billion under management.Mr Morgan said other organisations “might be dusting off the abacus” and there were “probably others” looking at a break-up scenario. He said the Perpetual brand is a strong understated intangible asset.A consortium including hedge fund manager Regal and a recently merged private equity powerhouse, BPEA EQT, last week revealed it had offered $30 a share to take over Perpetual, an offer knocked back by the board and one that analysts say needs to be higher.Most analysts value Perpetual’s corporate trust business at around $1.2 billion, consistent with the private equity business, while the private wealth business is conservatively valued at between $300 million and $400 million.RELATED QUOTESPPTPerpetual Limited$30.850 6.05%1 year1 dayNov 21May 22Nov 2222.50031.50040.500Updated: Nov 10, 2022 – 12.45pm. Data is 20 mins delayed.View PPT related articles AdvertisementFormer Perpetual Investments chief Peter Morgan says it was a “bad sign” that Perpetual chair Tony D’Aloisio (pictured) was photographed at Derby Day. Mr Morgan also questioned the Perpetual board’s strategy of buying other managers. The group is seeking to merge with Pendal, whose shareholders will be asked to approve the deal in December.Two years ago, Perpetual acquired US-based asset managers Trillium, a specialist ESG investment firm, and Barrow Hanley, which had strategies across US, global and emerging markets equities and fixed income. MST, which offers sell-side research and trading to institutional investors, said the acquisitions cost about $500 million including integration costs and Perpetual had seen about $10 billion in outflows since they were integrated.“None of the board or CEO have been fund managers and own many shares. If you flip it the other way, I doubt principals of boutiques (which are between 30 per cent and 70 per cent plus shareholders) would have been buyers from willing sellers like the Perpetual board have been,” Mr Morgan said.Sydney investor Peter Morgan. James BrickwoodMr Morgan said it was a “bad sign” that Perpetual chairman Tony D’Aloisio was photographed at the Melbourne Cup Birdcage. “John Lamble – who was a tough-nut past chairman that I liked – never would have done that,” he said.Mr Morgan’s comments came as Hunter Green analyst Mark Tomlins considered the upside for Perpetual if it were to pursue a company break-up.“Worst case, it buys the wilting Pendal business, and trades back down around $25 a share again,” he said. “Best case, it either calls off its controversial deal with Pendal (noting the deterioration in Pendal’s business and higher funding costs since the deal was announced) and the share price rallies modestly. Or the Perpetual business is broken up and the share price rallies hard.”Perpetual, Hunter Green said, could be worth $50 per share to a bidder, well above the consensus valuations in the mid-$30s.The driver of the higher price relative to other sell side analysts is a $1.4 billion valuation assigned to Perpetual Private, the private wealth business.Hunter Green noted that LGT paid a 50 times trailing earnings to buy Crestone, and based on the $27.5 million underlying profit generated by that unit, they say the wealth unit would account for $24 per share of value.That is greater than the $1.3 billion assigned valuation based on the coveted corporate trust business that has previously solicited interest from private equity.Other equity analysts assigned more conservative valuations. CLSA assigns a 13.5 times multiple and a $370 million valuation for the wealth business, while Shaw & Partners assigned a 10 times multiple to next year’s earnings to arrive at a $320 million valuation.