(Bloomberg) -- KKR & Co.’s A$2.2 billion ($1.4 billion) acquisition of Australian fund manager Perpetual Ltd.’s wealth management business is in danger of collapsing after the deal was hit by an unexpected tax bill.
Perpetual shares fell the most in more than 16 months in early Sydney trading Tuesday after the company said it faces a A$488 million tax bill from the deal, which will slash the cash proceeds to be distributed to shareholders. While Perpetual said it considers it has strong grounds to dispute the levy, that could delay the deal. In the meantime, the two companies are engaging to consider the potential impact on the transaction.
The extra costs may make the deal look unattractive to shareholders, who could opt to maintain the company’s current form, according to Morgan Stanley analyst Andrei Stadnik.
“We think this increased tax leakage lowers the likelihood of the sale completing given it is subject to shareholder approval,” Stadnik wrote in a note. Keeping the unit might provide a better foundation for Perpetual’s proposed turnaround of its investments division, he said.
KKR agreed in May to buy Perpetual’s wealth management and corporate trust units following a months-long sale process. But the cash proceeds have been deemed by the Australian Tax Office to be an assessable unfranked dividend for shareholders and taxed at the applicable rate, Perpetual said in a statement Tuesday.
“Perpetual is extremely disappointed and disagrees” with the ruling, the company said, noting that numerous previous deals had been undertaken in a similar manner in Australia. “Based on strong advice from relevant tax experts, including senior counsel, and following extensive board testing and consideration, Perpetual continues to be of the view that the provisions should not apply.”
The Tax Office ruling will reduce the cash proceeds to shareholders from the deal to A$5.74-A$6.42 per share from the previously expected A$8.38-A$9.82 per share, Perpetual said.
Perpetual shares fell as much as 9.7%, the biggest decline since July 28, 2023, on an intraday basis. The stock is down around 19% this year, slicing the fund manager’s market value to about A$2.4 billion.
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