Perpetual has announced it will scrap its deal with KKR after an independent expert ruled it would not be in the best interest of shareholders.
In an ASX statement, the firm said its board had withdrawn its recommendation in favour of the scheme, and the scheme implementation deed had been terminated following a formal report from the independent expert.
Last December, the Australian Taxation Office (ATO) ascertained Perpetual’s primary tax liability could be as much as $488 million if the deal proceeded. Further additional penalties and interest could also cause this sum to rise by as much as a further 50 per cent, it said.
As a result, the previously announced advised range in respect of tax and duties rose dramatically from $106–227 million to $493–529 million. This meant estimated cash proceeds to shareholders from the transaction, if the scheme is implemented, would reduce from $8.38–9.82 per share to $5.74–6.42 per share.
While Perpetual said it had “strong grounds” to dispute the ATO’s position, it would be a costly action with no certainty of the outcome. As a result, the two parties were engaging to consider the potential impact of the transaction.
In an announcement on 24 February, it said: “In the period since the announcement of the ATO’s feedback in December, Perpetual and KKR have engaged extensively including on revised non-binding indicative proposals received from KKR.
“Despite constructive engagement, no alternative transaction has been agreed. After thorough review and the extensive period of engagement, the board has determined that the value and terms of those revised proposals, including the various conditions included, were not in the best interests of shareholders and discussions have now ended.”
However, it said it will continue on the business separation program to establish standalone and more autonomous businesses, as well as implement a new operating model for asset management and deliver on an improved cost reduction program. It will also still pursue a sale of its wealth management division.
Perpetual’s CEO and managing director, Bernard Reilly, said: “After extensive review of the options available to Perpetual shareholders, we believe this is the right course of action to deliver long-term value for our shareholders. My conviction in the quality, performance and growth opportunities across all of our businesses has only increased since I joined Perpetual in September last year.
“Today’s path forward retains earnings diversification in the near term while we work towards implementing a leaner, more simplified operating model with three very focused businesses that can deliver better returns and with a stronger balance sheet to support investment in growth over time.”
