Perpetual flags tax blow, revises shareholder proceeds in KKR deal
Perpetual has announced it is in discussions with KKR to assess the implications of a significant tax revision related to its asset sale to the private equity giant.
The discussions follow the Australian Taxation Office (ATO) flagging concerns that could substantially increase the deal’s tax liabilities.
The fund manager disclosed on Tuesday that the ATO has provided its “written views” regarding the tax treatment of the transaction after what Perpetual described as “ongoing and extensive engagement.”
The revised tax liability now ranges between $493 million and $529 million, a sharp increase from the previously disclosed $106 million to $227 million.
As a result, the estimated cash proceeds to shareholders have been adjusted downward. The previously communicated range of $8.38 to $9.82 per share has been revised to $5.74 to $6.42 per share.
Perpetual explained that the ATO believes Section 45B of the Income Tax Assessment Act 1936 applies to the scheme. This means the entire cash proceeds from the disposal of TopCo shares could be treated as an assessable unfranked dividend, subject to shareholders’ applicable tax rates.
Compounding the issue, the ATO declined to provide a binding ruling that Part IVA would not apply, leaving open the possibility of further scrutiny under these provisions, Perpetual said.
The asset manager expressed strong disagreement with the ATO’s stance, stating it had relied on expert tax advice and extensive board consideration in structuring the transaction.
“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 company said.
Perpetual noted that its proposed scheme mirrored earlier transactions accepted by the ATO, including similar proposals by two previous bidders.
“These earlier proposals and the scheme were consistent with previous transactions involving a demerger and sale of a listed parent company,” it stated.
To contest the ATO’s position, Perpetual said it would need to withhold funds sufficient to cover the potential tax liability. The company warned that such a process would be lengthy, starting only after an ATO assessment, with no guarantee of a favourable outcome.
Meanwhile, Perpetual and KKR are engaging to evaluate the potential impact of the revised tax position on the transaction.
Perpetual emphasised its disappointment, stating it remains committed to protecting shareholder value while navigating the complexities of the ATO’s ruling.
The asset manager also flagged the possibility that the deal with KKR may not proceed given the revised tax bill, noting that it remains subject to the satisfaction of a number of conditions precedent.
"Should the transaction not proceed, Perpetual’s shareholders would continue to benefit from the financial stability and diversification provided by the group’s three strong businesses, as well as significant cost reduction opportunities across the group that align with its recently announced simplification program for the business."
