Challenger Financial Serviceshas revealed details of moves to corporatise the group with the announcement that it will ask shareholders to decide the company’s fate at a general meeting on December 22.
Challenger first announced in September that is was considering pursuing this path and had appointed independent consultants and experts to advise on the route the move should take.
At the meeting shareholders will be asked to vote on six resolutions which if approved will internalise the responsible entity of the group and eliminate the need to pay ongoing management and performance fees to CPH Management Ltd.
At present CPH Management receives $7.3 million in management fees per annum and may receive a further $9.2 million per annum in the event the volume weighted average unit price for units in Challenger as traded on theAustralian Stock Exchangeexceeds 60 cents for 10 consecutive business days.
Challenger’s share price has not been higher than 58 cents for the last six months and has been around 51 cents for the past month.
The resolutions will cover payments CPH Management and Challenger will make to each other, the payment of the chief executive and directors and the transition of unitholders to shareholders and have all been unanimously backed by the independent directors of the Challenger’s board.
The resolutions are interdependent and CPH Management will not be entitled to vote, however five of the six resolutions will require 50 per cent approval by investors with a change to the group’s constitution requiring 70 per cent approval.
If the resolutions are successful CPH Management will still hold a 25 per cent shareholding in the group alongside 300 million share options and have two nominees to the Challenger board – Kerry Packer and Ashok Jacob with a third, Graham Cubbin expected to join the board.
Challenger chief executive Chris Cuffe, who is on secondment to the group from CPH Management, says the move to a new structure would provide greater transparency around the corporate structure and tackle investor concerns.
“The existing trust structure is unusual for a financial services business and has received criticism from a number of existing and interested investors,” Cuffe says.
If the resolutions are passed Challenger will pay CPH Management $96 million for the latter stepping down as responsible entity.
At the same time CPH Management will pay $36 million to Challenger for its interest in Jurlique, a Challenger private equity investment, and also pay $60 million to purchase 300 million non transferable call options over shares in the new group.
These options would have an exercise price of 65 cents on a 10 year term with the three transaction resulting in no net cash flow from either group. However Challenger would take on the remuneration for the board and chief executive.
