Equity Trustees keeps its eye on the prize

In the largely forgotten battle for Trust Co, Equity Trustees believes its proposal offers greater value over the longer term.

Spurned suitor Equity Trustees is hoping institutional shareholders in The Trust Company will agree with the argument that its deal is superior because rival bidder Perpetual’s share price is currently inflated, people familiar with the matter say.

Equity Trustees on Wednesday sweetened its hostile bid for the second time, increasing its all-scrip offer from 37 shares to 39 shares in exchange for 100 Trust Co shares, which values the financial services firm at about $267 million.

The offer was lobbed just two weeks before the deadline for Trust Co shareholders to vote on a $294 million cash and scrip rival bid – backed by the target’s board – from investment services giant Perpetual.

Industry sources say Equity Trustees is banking on institutional investors agreeing that their deal will be worth more over the longer term, because the share price of investment services giant Perpetual is currently inflated. Equity Trustees will do the rounds with institutional investors this week.

Perpetual shares are trading at about 10 per cent above consensus fair value, one source said.

Equity Trustees argues that Trust Company shareholders will receive Perpetual shares that are trading at 19.3 times forward earnings, versus Equity Trustees trading at 16.3 times, and hence they will be receiving shares in a company that is highly-priced.

But some analysts questioned Equity Trustees’ argument that the Perpetual offer is based on highly-priced shares.

JP Morgan told clients that the gap between the two valuations “is more of a comment by the market on the future growth prospects of the two companies -- given their business models and returns are very different -- rather than an indication of over/under-value of the two companies”.

The Perpetual bid, which has been cleared by the Australian Competition Consumer Commission, requires 75 per cent acceptances.

Perpetual and Equity Trustees declined to comment.

But Perpetual is likely to remain the clear favourite of the Trust Co board.

Bell Potter said in an analyst note that it expects Trust Co’s board to stick with Perpetual’s bid, “as it is superior and given Equity Trustees is using synergy estimates (pre-tax $15 million) the Trust Co board had an independent party assess and found to be too high”.