Low probability of Perpetual Limited's (ASX:PPT) proposed sale of its corporate trust and wealth divisions to Kohlberg Kravis Roberts (KKR) succeeding due to the disappointing ruling from the Australian Taxation Office (ATO), Jarden Research said in a Dec.9 note.
Perpetual was notified by the ATO that the entire cash proceeds from the proposed sale of its businesses to KKR via a scheme of arrangement for AU$2.18 billion will be taxed to shareholders.
The ATO said that section 45B of the Income Tax Assessment Act will apply to the scheme where the entire cash proceeds from the sale would be deemed as an assessable unfranked dividend for shareholders and would subject them to tax at the applicable rates.
The estimated cash proceeds to shareholders from the deal would reduce to AU$5.74 to AU$6.42 per share, from Perpetual's previously expected range of AU$8.38 to AU$9.82.
Jarden believes that unless the tax ruling is overturned, KKR may need to adjust its offer terms to deliver the same net cash proceeds to Perpetual shareholders as originally promised.
Jarden notes that while the company can also appeal the ruling, both options will take significant time and have uncertain outcomes.
"We see a reduced probability of the deal succeeding as it stands," the investment firm said.
The investment firm maintained the company's overweight rating and raised its target price to AU$24.40 from AU$22.70.
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