Pendal is in play: Perpetual makes untimely offer

Shares in Pendal Group (ASX: PDL) were up around 22% at the open following revelations that Perpetual (ASX: PPT) had lobbed in a $2.4bn takeover offer which represents an indicative value of $6.23 for every Pendal share [based on Friday's closing price].

Today’s takeover offer announcement has provided some welcome relief for the Pendal share price which prior to today was down around 15% over the last year.

However, the same cannot be said for Perpetual with the share price down around -5.67% in early afternoon trade.

35.4% premium

Investors should note that the indicative value of $6.23 reflects a 35.4% premium to Pendal’s 30-day volume weighted average price up until 1 April.

According to today’s announcement, Perpetual has made a conditional, non-binding indicative proposal to acquire 100% of the rival fund manager's shares by way of a scheme of arrangement.

Each Pendal shareholder will receive $1.67 for every Pendal share owned prior to the takeover.

Shareholders to own around half the merged-entity

Assuming the proposed component of the scrip consideration follows through, Pendal shareholders will end up owning around 48% of the merged entity.

The Pendal board has started to make sense of Perpetual’s indicative proposal and notes that it coincides with a time when significant geo-political instability, and broader market volatility have disrupted global markets in which the company operates.

As well as assessing an Indicative Proposal in light of the value of Pendal on a strategic and control basis, the board is also carefully assessing the outlook for Perpetual and the proposed combined group, especially given the significant scrip component of the proposed consideration.

Clearly, what will weigh on the board’s thinking is the value over the longer term, which only represents a premium of 0.3% to Pendal’s volume-weighted average price for the 180 days prior to April 1.

Fundamentals

Last November, Pendal posted a FY21 statutory net profit (NPAT) of $164.7m, up 42% to the previous period, due to growth in fee revenue on increased funds under management (FUM) and favourable mark-to-market movements on the Group’s seed investments.

Management attributed a 25% increase in underlying profit during the year to $165.3m, to a substantial uplift in annuity income from base management fees, a four-fold increase in performance fees and the step-change in FUM as a result of the acquisition in July of Thompson, Siegel & Walmsley (TSW), a US-based value-oriented investment management company.

Since then, management’s update mid-January 2022 revealed a disappointing December quarter in terms of flows, with FUM for the December at $135.7bn.

Pendal's share price: A three month snapshot.