TOL - 25th May, 2024
Is the Perpetual deal a "case study" in bad business?
Sublime Funds Management's Rodney Forrest certainly thinks so.
It's been two weeks since Perpetual Limited (ASX: PPT) announced a $2.175 billion deal that will see private equity giant KKR acquire its corporate trust, wealth management business and its brand - and yet, it remains one of the most emotionally-driven subjects in markets.
It has seen the firm's former Head of Equities, Paul Skamvougeras, head to LinkedIn, arguing the deal comes after a series of "ill-timed, debt-fuelled and dilutive acquisitions" which have seen "the best brand name in Australian funds management" being forced to sell to the "Barbarians at the Gate".
Analysts, however, remain "cautiously optimistic", with concerns remaining about undisclosed costs and potential tax implications that could erode some of the proceeds for shareholders.
The deal comes after nearly two decades of share price weakness, with Perpetual's share price sinking more than 73% since hitting a high in mid-2007.
More recently, under Perpetual Chair Tony D’Aloisio and CEO Rob Adams, the firm acquired Pendal in early 2023 in a deal worth nearly $2 billion. This saw its funds under management more than double at its asset management business but - for lack of a better description - royally screwed shareholders over.
Since Adams' first reporting period (after taking over as CEO in late 2018), diluted earnings per share has more than halved (from 2.46 cents per share in 2019 to 0.71 cents per share in 2023). And while sales growth has risen from -3% to 30.8% over that same period, EBIT margins have fallen from 31.5% to 16.7%. Debt, on the other hand, has skyrocketed.
Amid the media whirlwind, an unlikely opponent has emerged in Sublime Funds Management's Rodney Forrest. While he may have been known to financial journalists and avid Twitter/X users, Forrest hasn't widely been in the public eye - until he put his hat in the ring for a seat on Perpetual's board, that is.
Forrest has formerly worked for the likes of Moelis, Contact Asset Management, and most recently, for Kerr Neilson at his family office. He has not served on a board before - although he has completed a company directors course at the Australian Institute of Company Directors.
So, why is Forrest campaigning in the first place? He's adamant that it's not too late for Perpetual to retain its brand.
Forrest says he's received "hundreds" of calls and emails from long-term shareholders, Perpetual's competitors, and his fund management peers - all who agree that to lose the 138-year-old brand would be a "travesty".
"The disappointment across multiple segments of the community is very, very high," he says.
In addition, he argues that the Perpetual-KKR deal has clearly been "rushed", given the board has not provided shareholders with clarity around "separation costs and tax". He questions why the firm needed to employ 15 bankers to advise on the deal - instead of making a decision internally - and argues that investors have been undercut on the true value of Perpetual's brand.
"If you map together the multiple documents the company publicly releases, you can see that Australian Equities is delivering $100 million of pre-tax profits," he explains.
"Now, you put that on a ten-multiple, that's a billion dollars. It is worth 80% of the spin-off valuation. And there's no communication around that brand and why it's being given away, but it is 80% of the profit pool."
To learn more, Livewire sat down with Forrest to discover why he believes the deal is a disservice to Perpetual's shareholders. He shares how we got here in the first place, why he thinks he deserves a seat on Perpetual's board, and why Perpetual needs to focus on "processes instead of profit".
Note: This interview was recorded on Wednesday, 22 May 2024.
TIMECODES
- 0:00 - Intro
- 0:34 - Three reasons why the Perpetual-KKR deal doesn't pass the pub test
- 4:50 - How we got here in the first place
- 8:05 - Why Rodney believes he's right for the role
- 9:34 - Why Perpetual needs to focus on it's people and processes instead of profit
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Ally Selby is the deputy managing editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian Group, Your Money, Sky Business and Sky News.
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Ally Selby is the deputy managing editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian...
Expertise
Ally Selby is the deputy managing editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian...
Expertise
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