By Scott Murdoch and Lewis Jackson

(Reuters) -Australian fund manager Perpetual on Wednesday rejected a A$3.1 billion ($2 billion) takeover offer from its largest shareholder, diversified investor Washington H Soul Pattinson (WHSP), saying the proposal undervalued its business.

WHSP has a 9.9% stake in Perpetual. Its proposal came hours after Perpetual announced that it was looking at splitting off its corporate trust and wealth management businesses from its core asset management division.

Perpetual saw its shares surge 6% on news of the strategic review. WHSP's bid was announced after market hours.

The bid comes amid a wave of consolidation in the Australian wealth management market after Perpetual bought rival Pendal for A$2.5 billion earlier this year and Regal Investment Fund picked up PM Capital last month.

The indicative non-binding scrip bid values Perpetual at A$27 a share, which is a 28.6% premium to its share price on Nov. 13 when WHSP revealed an increased stake in the company.

The bid calls for Perpetual's asset management business to be spun off and distributed back to Perpetual's existing shareholders, WHSP said in a statement.

WHSP would retain ownership of Perpetual's wealth management and corporate trust businesses and take on about $A700 million worth of Perpetual debt.

The $A3.1 billion offer would consist of A$1.06 billion worth of WHSP scrip and A$2 billion worth of Perpetual Asset Management scrip.

"WHSP believes the complexity of the Perpetual group together with the current market backdrop and Perpetual's high financial leverage is weighing on the share price and constraining Perpetual's strategic flexibility," the firm said.

WHSP said its bid was conditional on being able to carry out due diligence and a unanimous Perpetual board recommendation to its shareholders

Morningstar equity analyst Shaun Ler said the WHSP bid represented fair value for Perpetual at a time when the macroeconomic climate does not favour fund managers.



A deal would also allow investors to cash out without needing to take on the execution risk of Perpetual's own plan to split off assets, he added.

($1 = 1.5184 Australian dollars)

(Reporting by Scott Murdoch and Lewis Jackson in Sydney; Additional reporting by Archishma Iyer in Bengaluru; Editing by Edwina Gibbs and Mark Potter)