Yesterday saw PPT make a $2.4bn bid for Pendal Group (PDL) at a 40% premium to the last traded price, although as the chart shows it was trading at the offer price only a few months ago! The market clearly thinks the bid has a long journey before crossing the finish line with PDL trading 18% below the scrip-and-cash bid of $6.23.The bid is understandable on a few fronts, not least the collapse in PDL’s share price over the last 6-months plus the desire for active fund managers like Perpetual to increase its funds under management (FUM) i.e. passive investment strategies have more than doubled over the last 15-years. This change to the investment landscape has already led to a consolidation across the global funds management space in recent years with more making economic sense.
This does feel like an opportunistic value and strategic play by PPT whose stock has performed ok over the last 6-months only falling 8.5% while the likes of Pendal (PDL), Magellan (MFG) and Pinnacle (PNI) have all tumbled between 30% and 50%, in a solid market. Hence the scrip heavy bid by PPT makes sense i.e. $1.67 cash plus the balance in PPT stock. We aren’t a holder of PDL but taking into account the current bid and core valuation of the stock which is still only trading on Est 10.5x 2022 earnings we think PDL will need to pay more to get the deal done. On UBS numbers they can pay up to $7 to maintain earnings accretion.
On balance we believe the current bid will require sweetening to be successful hence at the lower end of our trading range its clearly more of a buy than sell.
MM is neutral to bullish PDL around 5.30
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