Platinum Asset Management explores merger with L1 Capital to boost scale and investment diversity

Platinum Asset Management (ASX: PTM) has confirmed it is in early discussions with Melbourne-based hedge fund L1 Capital regarding a potential merger of the two companies.

The deal would combine the complementary investment firms to create a business with funds under management of approximately $18 billion and a valuation of about $1.3b based on Platinum’s share price.

Shareholders would likely benefit from greater scale and diversity of investment strategies and distribution channels if the merger goes ahead, while enjoying access to significant cost efficiencies.

Key commercial terms

The merger would see Platinum acquire L1 in return for a share consideration, giving L1 shareholders 75% equity in the company, while Platinum shareholders would own the remaining 25%.

The ratio accounts for the combined entity receiving participation in performance fees relating to the first 5% of absolute returns (gross performance net of management fees) generated by L1’s long-short funds, distributing any excess performance fees on returns above 5% to existing L1 shareholders.

The transaction also has the potential to deliver material earnings and value accretion for Platinum shareholders over the near term.

Attractive opportunity

Platinum chief executive officer Jeff Peters said the potential merger was an attractive opportunity to combine expertise and resources.

“L1 Capital is a first-class manager with a strong investment track record and we will continue to explore if this transaction is in the best interests of Platinum shareholders,” he said.

“We welcome L1 to the register and look forward to working with the firm as a major shareholder in Platinum irrespective of the outcome of the potential merger discussions.”

Compelling value

L1 co-founders Mark Landau and Raphael Lamm supported the merger as a compelling value proposition for Platinum shareholders.

“Our firm has a […] loyal, diverse and growing investor base, which has allowed us to grow profitably over many years and successfully launch new funds and strategies,” they said in a statement.

“Platinum has been one of the pioneers of global equities investing since the 1990s and we expect our combined businesses to benefit from improved resourcing and capabilities across investments, client service and operations, as well as increased diversification across investment strategies and distribution channels.”

Share sell-down

Mr Peters confirmed that L1 had acquired a 9.6% shareholding in Platinum following a share sell-down by Platinum co-founder and billionaire investment manager Kerr Neilson.

Mr Neilson founded Platinum in 1994 and retired from the company in 2022 with a 21% stake.

He has granted L1 a call option over part of his remaining shareholding, which L1 could exercise in the event of a competing proposal for Platinum and potentially boost its stake to 19.9%.