For now, the possibility of a takeover has lifted Perpetual’s share price from $25 a share on November 2, to almost $30 on Friday.

The bind the board finds itself in was spawned the day it hatched a plan to buy Pendal and shareholders made it clear that wasn’t good strategy.

Shareholders protested by systematically dumping Perpetual shares and short sellers jumped on board for the ride, which should have been a red flag that something was amiss.

At the heart of the pummelling is a lack of confidence in the group’s strategy of growth via acquisition that culminated in the Pendal tilt a few months ago - a deal considered risky, over-priced and highly dilutive that will laden Perpetual with debt at a time when interest rates are rising.

Frustrations mounted when the deal was stitched together in such a way that Perpetual shareholders weren’t given the opportunity to vote on it, despite it being company transforming. Interestingly, Pendal shareholders will get to vote on the deal.

Voting is scheduled to take place before the end of the year or early next year, which leaves a short window for takeover targets to neuter the deal.

The concern is   Perpetual is indulging in short-term sugar hits instead of addressing some key challenges including a rising level of expenses at a time markets face tough conditions.

Concerns about the deal ramped up on Friday when Pendal released its full-year results. Behind the gloss of a 17 per cent increase in underlying profit and an 8 per cent rise in revenue, a few ugly truths lurked including a $14 billion outflow of funds, rising expenses and a dividend that has been going backwards since 2018.

While it is tough times for the sector globally, and Pendal says the performance is in line with what’s happening with its beleaguered peers, it will do little to quell fears. For some, Perpetual is buying a business that is in decline, and they question what the point of that is.

When Perpetual first unveiled the Pendal deal in August, it was pitched as “a defining acquisition”. In its market presentation, it said it created a “leading global multi-boutique asset business with improved scale and reach”. In other words, it was about being big, doubling in size from $100 billion to $200 billion.

But merging funds management businesses is a rocky path. The key asset of funds management operators is its people and if staff walk due to incompatible cultures, then so does the business.

The concern is Perpetual is indulging in short-term sugar hits instead of addressing some key challenges including a rising level of expenses at a time markets face tough conditions.

The Perpetual board attempted to bat off an unsolicited takeover offer on Thursday, stating it “materially undervalued the company” and therefore wouldn’t engage because it wasn’t in the best interests of shareholders.

But if a better offer comes forward, as it is expected to do, it will become increasingly difficult for Perpetual chairman Tony D’Aloisio and the board to brush it aside.

While chief executive Rob Adams would like to sit on a merged business with $200 billion in funds under management, the reality is he is in a no-lose situation. With a bag of equity and performance rights granted at the last annual general meeting for a job well done, it’s game on.

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