• Perpetual Limited provided an update on its proposed acquisition by KKR.
• The Australian Taxation Office (ATO) has indicated that the transaction could be subject to significant tax liabilities.
• The ATO's assessment suggests that the cash proceeds from the sale could be treated as an unfranked dividend for shareholders, resulting in taxation at each shareholder's applicable rate.
• The ATO has also declined to rule out the application of Part IVA, which could result in an estimated primary tax liability of A$488 million for Perpetual.
• Perpetual maintains that these tax provisions should not apply and is engaging with KKR to consider the potential impact on the transaction.
• Despite these challenges, Perpetual's Asset Management, Corporate Trust, and Wealth Management divisions have shown growth in the first quarter of FY25.
• Asset Management's assets under management (AUM) increased by 3% to A$222.3 billion, Corporate Trust's funds under administration grew by 1% to A$1.2 trillion, and Wealth Management's funds under advice grew by 3% to A$20.4 billion.
• Perpetual is continuing with its internal separation program to establish each of its businesses as discrete, independent entities.

Score: 3

Explanation: The negative sentiment is driven by the significant tax risks identified by the ATO, which could derail the acquisition and lead to substantial financial liabilities for Perpetual. While the company's operational performance is positive, the tax issues overshadow these achievements.

• The ATO has indicated that the entire cash proceeds from the sale to KKR could be deemed an assessable unfranked dividend for shareholders.
• The ATO has declined to provide a binding ruling that Part IVA will not apply and indicated it cannot rule out its application, potentially leading to a A$488 million tax liability for Perpetual.
• Perpetual's Asset Management division saw a 3% increase in assets under management (AUM) to A$222.3 billion in the first quarter of FY25.
• Corporate Trust's funds under administration grew by 1% to A$1.2 trillion in the same period.
• Wealth Management's funds under advice increased by 3% to A$20.4 billion.
• Perpetual is proceeding with an internal separation program to create independent business units.

• Asset Management's AUM increased by 3% to A$222.3 billion in 1QFY25.
• Corporate Trust's funds under administration grew by 1% to A$1.2 trillion.
• Wealth Management's funds under advice grew by 3% to A$20.4 billion.
• Perpetual is progressing with its internal separation program, which could benefit shareholders even if the transaction with KKR does not proceed.
• Perpetual has delivered growth in AUM as of 31 October 2024.

• The ATO's view on the tax treatment of the transaction could result in significant tax liabilities for Perpetual and its shareholders.
• The potential application of Part IVA could lead to an estimated primary tax liability of A$488 million for Perpetual.
• There is uncertainty regarding the outcome of any potential litigation with the ATO.
• The potential tax issues could impact the viability of the transaction with KKR.

• The primary risk is the potential application of section 45B and Part IVA of the Income Tax Assessment Act by the ATO, which could result in substantial tax liabilities for Perpetual and its shareholders.
• There is a risk that the transaction with KKR may not proceed due to the tax issues.
• Litigation with the ATO could be costly and time-consuming, with no guarantee of a favorable outcome.
• The uncertainty surrounding the tax treatment of the transaction could negatively impact Perpetual's share price.

Perpetual will continue to engage with KKR to assess the impact of the ATO's views on the transaction and will keep the market informed of any developments. The company is also continuing with its internal separation program.

• Perpetual continues to be of the view that the provisions should not apply.
• In Perpetuals assessment of the Scheme, it noted numerous previous scheme transactions that had been undertaken in a similar manner.
• If the transaction does not proceed, Perpetuals shareholders would continue to benefit from the financial simplification program for the business.

This announcement highlights the complexities and potential tax implications of large-scale corporate transactions, particularly in the financial services industry. It also underscores the importance of obtaining tax rulings and engaging with regulatory bodies like the ATO during such transactions. The growth in Perpetual's business segments reflects the overall positive trends in the asset management and wealth management sectors.

• Perpetual's AUM growth of 3% is competitive within the Australian market. For example, Magellan Financial Group reported a decrease in funds under management in their most recent update. Pendal Group, a subsidiary of Perpetual, reported a 2.5% increase in AUM in their most recent quarterly update.
• The 1% growth in Corporate Trust's funds under administration is in line with industry trends, where competitors like Australian Executor Trustees have also reported modest growth.
• The 3% growth in Wealth Management's funds under advice is positive, comparing favorably to competitors such as IOOF, which reported a slight decline in funds under advice in their latest report.

• Perpetual and KKR will engage to consider the potential impact of the ATO's views on the transaction.
• Perpetual will continue to progress and finalise the internal separation program.
• Perpetual will keep the market informed in line with its continuous disclosure obligations.

• 10 December 2024: Date of the ASX announcement providing an update on the Scheme with KKR.
• 31 October 2024: Date to which Perpetual has delivered growth in AUM.