Perpetual Shares Drop

By Himanshi Akhand

(Reuters) – Shares of Perpetual fell nearly 10% on Tuesday after a review by Australian tax authorities of its deal to sell its wealth management and corporate trust businesses to KKR & Co (NYSE:KKR) revealed higher liabilities and lower shareholder returns.

The fund manager stated that the Australian Taxation Office (ATO) refused to issue a binding ruling confirming that Part IVA of tax rules, which could invalidate the tax benefit of the scheme, would not apply to the KKR deal.

Perpetual now estimates taxes and duties related to the deal to be between A$493 million ($317.20 million) and A$529 million, up from an initial assessment of A$106 million to A$227 million.

This adjustment means estimated cash proceeds from the deal would decrease to A$5.74 to A$6.42 per share, down from the previously expected A$8.38 to A$9.82.

Shares of the fund manager dropped as much as 9.7% to A$19.785 following the taxation update, marking their largest intraday decline since late July 2023, making it the top loser in the ASX 200 index.

Perpetual expressed being "extremely disappointed" and disagreed with the tax office's perspective.

"Perpetual considers it has strong grounds to dispute this position… Perpetual and KKR are engaging to consider the potential impact on the transaction," the company stated.

Citi analysts noted that the ATO's assessment would result in significant tax leakage from the deal and questioned how the independent expert could now recommend the deal as being in the best interest of shareholders, suggesting a shareholder vote is unlikely.

With the deal's future in doubt, Perpetual has options to keep the business intact in hopes of selling the entire business, including the asset management segment, as suggested by Citi.

($1 = 1.5542 Australian dollars)