Shares in Challenger Ltd (ASX: CGF) have risen around 4% in morning trade (at the time of writing), while Pepper Money Ltd (ASX: PPM) shares initially fell as much as 6% before paring back some of the losses, after both companies confirmed (here and here) that takeover talks are officially over.
At the centre of it was a non-binding proposal from Challenger to acquire Pepper at $2.25 per share, an offer which was positioned as its "best and final" offer.
Whilst Pepper shares increased sharply when the offer was first announced, Pepper's independent board committee ultimately decided the deal wasn't executable and walked away.
So what actually happened here, and why did Pepper shares react so differently to Challenger shares?
Image source: Getty Images
Why Pepper shares fell
Pepper shares are falling because the Challenger takeover proposal was made at a premium to Pepper's share price before the takeover talks began, and with the deal now off, the market is repricing Pepper shares accordingly.
On 9 February, Challenger announced a non-binding proposal to acquire Pepper Money for $2.60 per share.
At the time, Pepper shares had closed the previous Friday at $1.76, meaning the proposal represented a significant premium for shareholders.
The market reacted immediately. Pepper's share price surged 28% to $2.26 as investors priced in the possibility of a deal at a much higher valuation. Challenger subsequently revised its offer to a lower price of $2.25 per share, citing changing market conditions, and Pepper shares fell then.
Following today's drop, Pepper shares are now trading around $1.60, but whilst the rejection may seem to be primarily about valuation, the language used by Pepper's board to explain the decision is interesting.
Pepper's independent board committee concluded that Challenger's proposal was "not reasonably capable of execution." That's corporate speak for too many risks and too much uncertainty.
It comes at a time when there is greater focus on private credit markets, but Pepper also said it is experiencing strong momentum in early 2026, with applications up 21% and originations up 34% year on year.
Why Challenger shares rose
Challenger's share price reaction tells a different story.
Rather than being punished for a failed deal, the stock moved higher, likely because investors were sceptical of the deal's merits from Challenger's perspective.
Acquisitions always carry risk, including integration challenges, execution complexity, and the possibility of overpaying.
By not proceeding, Challenger avoids those risks and instead continues with its $150 million share buyback plan, which is (from an investor's perspective) a cleaner, more predictable way to return capital to shareholders.
What this means for investors
For Pepper shareholders, the drop reflects the loss of takeover upside. The bid premium is gone, and the stock is resetting to fundamentals.
For Challenger investors, the takeaway is more positive, and they can look forward to more share buybacks.
The broader lesson?
M&A deals are never a done deal until they are actually done.
