The Washington H Soul Pattinson logo is seen displayed on a smartphone screen.
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Stocks of Australian investment firm Washington H. Soul Pattinson, also known as Soul Patts, and its affiliate Brickworks surged after both companies announced a A$14 billion ($9 billion) merger.
Shares of Soul Patts traded 13.78% higher, while Brickworks, Australia’s largest brickmaker, jumped 22.32% as of 1 p.m. local time.
As part of the deal, a new company listed in Sydney will acquire all outstanding shares of Soul Patts and Brickworks. The merged entity is projected to be worth around $9 billion, with holdings across real estate, private equity, and credit totaling A$13.1 billion.
“Merging Soul Patts with Brickworks makes a lot of strategic and financial sense,” Soul Patts CEO and Managing Director, Todd Barlow, said in a statement. He added that the deal “simplifies the structure, adds scale, and creates a more investable company.”
The merger will unwind a 56-year mutual ownership that was designed to fend off hostile takeovers and promote long-term investment strategies. Soul Patts owns 43% of Brickworks, while the brickmaker has a 26% stake in Soul Patts. However, critics argued that it suppressed shareholder value and corporate transparency.
Brickworks shareholders are set to receive an implied value of A$30.28 per share, reflecting a 10.1% premium over the stock’s closing price last Friday.
Pitt Capital Partners is acting as adviser to Soul Pattinson, and Citigroup Global Markets Australia is advising Brickworks.
The merger follows several unsuccessful attempts to unwind the cross-shareholding between Soul Patts and Brickworks, including a concerted effort by Perpetual Investment Management and venture capitalist Mark Carnegie between 2012 and 2017, which was dismissed after the Federal Court ruled that the structure was not detrimental to shareholders.
“The structure [was] odd, set up in 1969 as a share swap between two companies with similar market caps to protect against each other being taken over,” said Hugh Dive, chief investment officer of Atlas Funds.
“Historically, we have avoided both as the cross holdings/complicated structure saw both companies trade at a discount to their peers,” Dive added.
While the move is not significant in terms of the M&A scene in Australia, the investors “clearly like it,” he said, pointing to the share move.
