Platinum’s Last Gasp: L1 Calls the shots in $1.46b deal

The documentation makes it clear that the Platinum name is going to disappear from the company moniker although we don’t yet know what the merged company will be called.
It hasn’t been an easy ride for an awful long time for Platinum’s investors, its shares dropping from as much as A$9.50 in 2015 to as low as 45 cents in June before the reverse takeover was proposed.

While Platinum has almost as much funds under management (FUM) as L1 – A$8.1 billion at June 30 compared with A$8.4 billion – the target company has been bleeding FUM with A$428 million withdrawn in just June alone and is now well below the 2015 peak at A$29.4 billion.

By contrast, L1‘s flagship A$4.8 billion long-short fund has delivered annual returns of 18.1% since its inception in September 2014 and its FUM has risen from A$500 million in January 2015 with A$3 billion attracted since the June 2022 financial year.

The relative performance of the two managers is reflected in the merger terms: Platinum shareholders will end up with 26% of the combined company with L1 being issued shares to take its stake to 74%.

In addition, Platinum shareholders will receive the first 3.5% of the returns generated by L1’s funds while L1 shareholders will keep any returns above that – the sweetener is that if the L1 funds achieve lower returns, they will still have to deliver that 3.5% before L1 shareholders get anything.

However, the lowest returning L1 vehicle, its 45.2%-owned A$320 million UK Residential Property Fund, has delivered annual returns of 6.8% since inception in September 2017.
L1 also wants to use the A$191 million in cash on Platinum’s balance sheet to fund growth.

After the reverse takeover, L1 co-founders Mark Landau and Raphael Lamm will each own 33% of the combined company with two other L1 shareholders owning 4% each and Platinum founder Kerr Neilson will retain 3% - he sold 9.6% of his Platinum stake to L1 in May and granted it a call option to take L1’s stake to 19.9%.

However, analysts view the reverse takeover as a good deal for Platinum shareholders.

UBS analysts noted that Platinum has said the “merger” is double-digit earnings-per-share (EPS) accretive to consensus estimates of Platinum’s EPS and raised their 12-month target price from 47c to 53c – the shares ended last week at 65c, valuing Platinum at A$378.4 million.

That share price implies the merged company will have a market capitalisation of about A$1.46 billion.

UBS noted most of the FUM lost in June was retail money. “Risks of further outflows remain elevated,” it said.

Jarden said the two organisations are “highly complementary” with Platinum having a higher weighting in international equities and L! a greater domestic Australian focus, and that L1 may been able to stem Platinum’s FUM outflows.

Platinum has estimated that its management fees for the year ended June 30 would be A$94 million while L1’s would be A$137 million – L1 shareholders would have retained an estimated A$44 million in performance fees if the two companies had been merged.

Platinum expects its shareholders will receive the independent valuation and other offer documentation next month.