No wonder Turnbull is pushing for more coal projects!
Pengana Capital pounces on Hunter Hall
Daniel Palmer
9 March 2017
A new $3 billion fund manager is set to be created after unlisted Pengana Capital swooped in the long-running
battle for control of ethical fund manager Hunter Hall International.
The two parties signed a merger agreement late on Thursday that still relies on the approval of Hunter Hall shareholders, with Pengana slated to secure a 73 per cent holding in an enlarged entity.
The structure of the deal makes it hard to line up against prior all-cash bids of $2.40 a share from Pinnacle Investment Management and $2 a share from Washington H. Soul Pattinson. The group last traded at $2.42.
However, Hunter Hall chairman Kevin Eley stressed the group was confident the Pengana deal would prove “clearly superior” to the off-market proposals already before shareholders as it presented investors with the chance to retain skin in the game.
“The board made it very clear we wanted the best outcome for shareholders. This is the outcome of that two month (process),” he told The Australian. “We believe this is the very best opportunity.”
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Synergies from the deal are seen at $6 million per annum.
Pengana bolted from the blue in the takeover battle, with the fight previously seen as a straight scrap between initial bidder Soul Patts and later entrant Pinnacle.
Soul Patts has not been left out in the cold, however, as it secured a 37 per cent holding in Pengana for an undisclosed fee on Monday.
That deal was completed with NAB, which headed for the exit almost a decade after claiming the stake from
Pengana co-founder Prime Minister Malcolm Turnbull in 2008 for a price believed to be between $10 million and
$20 million.
If the Pengana and Hunter Hall tie-up is approved by shareholders, Soul Patts will hold a 32 per cent stake and serve as the largest shareholder. It will not be able to vote on the deal, however.
Russel Pillemer, co-founder and CEO of Pengana, said the deal had come about after an introduction was made with Mr Eley earlier this year, with extensive due diligence taking place on both sides in the four to six weeks since.
“It was very helpful having (Soul Patts) as an investor on both sides of the equation,” Mr Pillemer added, while stressing they had been at “arm’s length” in the process.
Mr Pillemer will be tasked with the job of leading the merged entity, while the Hunter Hall board will get a reboot.
The new chairman will be former Colonial First State Global Asset Management boss Warwick Negus, while Mr Eley will remain on the board alongside current Hunter Hall director David Groves.
They will be joined by Pengana representatives Mr Pillemer, Rob Barry and Jeremy Dunkel, with Wayne Hawkins the only departure from the current three-person Hunter Hall board.
It is unclear if Pinnacle will look to re-enter the fold, with Mr Eley noting Hunter Hall hadn’t heard from them “in some time”.
The proposal threatens to put to an end a complicated saga that began in earnest on December 28 when Hunter Hall founder and chief investment officer Peter Hall shocked investors by walking out on the company.
As Mr Hall headed for the exit he accepted a remarkable lowball $1 a share offer from Soul Patts for a 19.9 per cent stake in the business. That deal eventually led to a full-blown takeover offer at the same price.
The $1 a share acceptance was remarkable for both the discount to its market value – shares in Hunter Hall were trading at $3.10 prior to the Mr Hall’s exit – as well as the identity of the buyer in Soul Patts, a noted coal investor that would appear to be out of place with an ethical fund.
The 19.9 per cent share sale on face value cost Mr Hall $11.4m.
In the time since, Mr Hall has been slowly extricating himself from the fund manager that he built, culminating with a departure from the board on Tuesday that sees his lone remaining role as one of adviser while he serves out his six-month notice period.
He retains a 24 per cent holding that Soul Patts considered to be earmarked for them when the 19.9 per cent stake sale was agreed, only to discover a rival bidder emerge in the form of Pinnacle Investment Management.
Mr Hall’s remaining stake in the vehicle cannot be divested through the merger detailed on Thursday, although he could still offload it to Soul Patts or Pinnacle through their off-market offerings.
Mr Eley said Hunter Hall was “not aware at all” of Mr Hall’s current intentions but said he expected the deal would open up more avenues for Mr Hall to complete his divestment.
“I think this is a tremendous opportunity for all our shareholders,” he added.
“I would hope in due course it can return the share price to where it was (pre-Mr Hall’s exit), if not much more.”
Hunter Hall shares, which were in a trading halt throughout Thursday’s session, last changed hands at $2.42.