Soul Pattinson and Brickworks set to end 56 years of cross-ownership with $14b merger

Diversified investment house Washington H Soul Pattinson (ASX: SOL) has announced it will merge with industrial group Brickworks (ASX: BKW) to create a $14 billion private capital, property and building products powerhouse.

The proposed merger will end decades of cross-ownership first cemented in 1969, whereby Soul Pattinson owns 43% of Brickworks and Brickworks has a 26% stake in Soul Pattinson.

The billionaire Millner family, which backs both businesses, will emerge with around an 8% stake in the merged entity.

Proposal terms

Under the terms of the proposal, Brickworks shareholders will receive an implied value of $30.28 per share, representing a 10.1% premium to its last closing price of $27.51.

Soul Pattinson shareholders will receive one share in the newly formed company for every SOL share held.

The merged entity will be capitalised by the issue of at least 34 million new shares, with the equity used to cover a significant portion of outstanding Brickworks debt, other liabilities and transaction costs.

The company will ultimately retain the Washington H Soul Pattinson name and ASX ticker code.

Increased exposure

Soul Patts expects the merger to provide its shareholders with increased exposure to Brickworks’ building products business across Australia and the US, as well as stable cash generation and rental upside from its high-quality industrial property asset portfolio.

Brickworks shareholders will benefit from exposure to Soul Pattinson’s diversified portfolio across multiple asset classes, which deliver cyclical protection and a strong cash flow generation profile.

Soul Pattinson’s board and Brickworks’ independent directors have committed to ensuring the transaction is value accretive to both companies, with an appropriate sharing of benefits for both sets of shareholders.

Strategic sense

Soul Pattinson chief executive officer Todd Barlow said the merger made strategic and financial sense.

“In many ways, Soul Pattinson and Brickworks have evolved together and shared in the capital stability provided by our cross-shareholding over the past 56 years,” he said.

“It has helped achieve a diversification of earnings, promoted long-term investment decisions and created significant long-term value for shareholders and we believe the combined business will be in an even stronger position to deliver enduring value.”

Well timed merger

Brickworks chief executive officer Mark Ellenor said the merger was well timed.

“Brickworks has undergone significant evolution over the past few decades, with growth in the value of its property assets and building products portfolio,” he said.

“The time is now right to combine with Soul Pattinson and bring our portfolios under one investment company to create a well-resourced and more diversified group delivering long-term value for all shareholders.”

The boards of both companies have unanimously recommended the proposed merger and will each appoint an independent expert to advise on whether it is in the best interests of their respective shareholders.