Australia's Pepper Group accepts $518 million KKR takeover offer

SYDNEY (Reuters) - Australian non-bank lender Pepper Group PEP.AX agreed on Thursday to a A$657 million ($518 million) takeover from U.S. private equity giant KKR KKR.N, the latest in a rush of players hungry for a slice of the country's property boom.

Pepper said it entered a scheme implementation deed with KKR-controlled bidders, which allows shareholders to choose either A$3.60 a share cash payment, or shares in the bidding vehicle.

“We believe it represents a compelling opportunity for shareholders, allowing them to choose to either obtain liquidity for their shares at an attractive valuation or remain invested in the Pepper business,” Pepper Group Chairman and top shareholder Seumas Dawes said.

The deal buys KKR exposure to Australia’s A$1.7 trillion ($1.30 trillion) mortgage market, which is highly profitable with very low delinquencies and lucrative commissions.

The offer is a 3.7 percent premium to Wednesday’s closing share price of A$3.47. The scheme is expected to be implemented in November, Pepper said.

“Pepper is positioned to thrive in the current market environment,” said Dan Pietrzak, managing director of bidder KKR Credit Advisors LLC, in an emailed statement.

Its loan book jumped 36 percent in 2016, compared with the banking sector’s 6.5 percent credit growth, as big banks backed off risky lending in response to regulators’ concerns about ballooning household debt.

In June, publisher Fairfax Media Ltd FXJ.AX followed rival News Corp NWSA.O with plans to enter the mortgage broking business, which generates A$2 billion a year in commission.

Reporting by Tom Westbrook; Editing by Stephen Coates