Platinum Asset Management Ltd (ASX: PTM) shares are in the spotlight on Tuesday after the fund manager released an update on its potential merger with the operator of the L1 Long Short Fund Ltd (ASX: LSF).
However, the reaction has been muted, with the company's shares down 3% to 48.5 cents at the time of writing.
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Platinum shares lower on merger update
This morning, Platinum revealed that it has entered into a merger implementation deed with the shareholders of L1 Capital, which contains the binding terms of the proposed merger between the two parties.
According to the release, subject to the satisfaction of the conditions precedent, Platinum will acquire 100% of the issued share capital in L1 Capital, in exchange for the issue of new Platinum shares to existing L1 Capital shareholders.
It certainly will be a large number of shares being issued. Under the terms of the merger, existing L1 Capital shareholders are expected to hold 74% of the issued share capital in the merged group. Whereas existing Platinum shareholders will hold the remaining 26%.
Outside this, Platinum shareholders will receive in-perimeter performance fees related to the first 3.5% of absolute returns (gross performance net of management fees) generated by L1 Capital's Long Short funds and mandates.
Whereas existing L1 Capital shareholders will retain performance fees on L1 Capital's Long Short funds and mandates in excess of the first 3.5% of absolute returns.
Why are they merging?
Platinum believes that the combination of the two companies will create a market-leading provider of listed and alternative investment strategies with total funds under management of approximately $16.5 billion.
There are a number of expected benefits for Platinum shareholders that have also been highlighted. This include exposure to a scalable, growing, and well-diversified platform of alternative investment strategies.
In addition, it has earmarked $20 million of annual pre-tax cost synergies. This is expected to make the proposed transaction materially earnings per share accretive for Platinum shareholders over the near to medium term.
In fact, it estimates that it will be double digit earnings per share accretive in the next twelve months following completion, and over 30% accretive in FY 2027.
Commenting on the merger, Platinum's chair, Guy Strapp, said:
The Platinum Board is unanimous in its view that this transaction is in the best interests of shareholders. After careful consideration, we believe the combination with L1 Capital provides a catalyst to deliver strong outcomes for shareholders and investors, creating a high-quality manager with a strong heritage, world-class investment talent and scale.
