Dec. 20 (Bloomberg) -- KKR & Co. ended talks to buy Perpetual Ltd. for at least A$1.75 billion ($1.73 billion), triggering the biggest drop in the Australian fund manager’s shares in more than two years.
The parties couldn’t agree on acceptable terms, they said in separate statements today. KKR won’t carry out due diligence and Sydney-based Perpetual doesn’t expect further discussions with the New York-based buyout firm, Perpetual said.
Perpetual’s 15 percent tumble in Sydney trading erased most of the gain since announcing the approach in October. KKR’s challenge was to lock in the target’s senior investment managers, led by head of equities John Sevior, to avoid buying a business left bare if key workers defect. That’s not a typical private-equity investment, said Shaun Manuell at Equity Trustees Ltd.
“It didn’t really fit the mould,” said Manuell, who helps manage A$750 million in Australian stocks at Equity Trustees in Melbourne. “They tend to look for steady, stable cash flows and improve operational efficiencies. It’s a difficult model for service industries.”
Perpetual shares fell to A$31.54 at the 4:10 p.m. local time close in their biggest decline since October 2008. KKR’s proposal was as high as A$40 a share. Before the approach was made public nine weeks ago, Perpetual stock fetched A$30.97.
Perpetual said this month it signed confidentiality agreements with KKR and gave the private-equity firm access to some data. An estate trustee since 1888, Perpetual had said the legal implication of selling that unit was among issues to resolve before a bid could be recommended to shareholders.
“The parties have agreed that such an offer by KKR cannot be formulated,” Perpetual said in its statement. “Mutually acceptable terms were unable to be developed.”
For KKR, the collapse of talks is at least the second failure since July. That month, a group including Carlyle Group and TPG Capital beat KKR after bidding A$2 billion for Australian hospital operator Healthscope Ltd. KKR bid alone, people familiar with the matter said at the time.
“KKR was satisfied with the level of access and information received,” Ian Smith, an Adelaide-based spokesman for the private-equity firm, said in a statement today. He confirmed the two companies couldn’t reach agreement.
Perpetual on Oct. 15 was valued at 13.6 times earnings, 29 percent below its average of 19.2 times over the past five years, according to data compiled by Bloomberg.
Perpetual was founded in Sydney in 1886 by a group that included Edmund Barton, who became Australia’s first prime minister in 1901. The company on Nov. 30 managed more than A$27 billion in investment funds, according to its website.
KKR was seeking an asset manager in Australia’s A$1.35 trillion pension-fund industry. The offer followed a surge by the Australian dollar to parity with the U.S. currency in October, driving up the cost to foreign investors buying the nation’s assets.
Perpetual, which is also searching for a new chief executive officer, reiterated that it expects underlying profit after tax for the six months ending Dec. 31 of between A$35 million and A$40 million.
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