Long-time partners Brickworks, Washington H. Soul Pattinson tie knot for $14b

Investment house Washington H. Soul Pattinson and Brickworks — Australia’s biggest brickmaker — have sealed a deal to create a new $14 billion company.

The union will bring an end to a bizarre decades-long cross-shareholding each company had in the other, with Soul Patts holding 43 per cent of Brickworks, and the building materials company holding 26 per cent of Soul Patts.

The arrangement, set up in 1969, was designed to deliver stable dividends during construction downturns and fend off hostile raiders of both companies.

Under the terms of the deal announced on Monday, a new ASX-listed company will buy all the stock in Soul Patts and Brickworks in a bid to create a cleaner capital structure and increase the number of shares that trade each day.

Share prices for both companies surged in early trade, with Souls Patts rallying more than 10 per cent to $40.85 and Brickworks rocketing more than 18 per cent to $32.50.

Soul Patts chief executive Todd Barlow said the deal made a lot of strategic and financial sense.

“It simplifies the structure, adds scale, and creates a more investable company,” Mr Barlow said.

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

“The cross-shareholding served an important purpose over the years by achieving diversification of earnings, promoting long-term investment decisions and creating significant long-term value for shareholders.

“However, we believe the combined business will be very well diversified and in an even stronger position to deliver enduring value for all shareholders.”

Brickworks boss Mark Ellenor said the building materials company had undergone significant evolution over the past few decades, with the growth in value of its property assets and its building products portfolio.

“The time is now right to combine with Soul Patts, bring our portfolios under one investment company, and become a well-resourced and more diversified group delivering long term value for our shareholders,” Mr Ellenor said.

The union will create a new ASX-listed company, with Brickworks shareholders receiving an implied value of $30.28 a share — a premium of 10.1 per cent to their last closing share price.

Soul Patts shareholders will receive shares on a one-for-one basis while Brickworks investors will get 0.82 shares in the new entity for every Brickworks share they hold.

Based on the merger ratio and issue of shares, Soul Patts shareholders, Brickworks shareholders and new company shareholders will receive about 72 per cent, 19 per cent and 9 per cent, respectively. Soul Patts said the final ownership ratios will depend on the final corporate structure.

Soul Patts board’s lead independent director David Baxby called the deal “a pivotal step forward in a relationship that has evolved over many years”.

“The board has unanimously endorsed the merger, recognising the significant value it will unlock for shareholders of both companies,” he said.

“By simplifying the cross-shareholding structure and combining our strengths, we create a larger company with greater scale and stronger long term growth potential.”

Brickworks chief executive Mark Ellenor said the company had grown the value of its property assets and building products portfolio in recent years.

“The time is now right to combine with Soul Patts, bring our portfolios under one investment company, and become a well-resourced and more diversified group delivering long-term value for our shareholders,” Mr Ellenor said.

Once the transaction is complete the new entity will revert to be renamed Washington H. Soul Pattinson and Company Limited, and will trade under the ASX ticker SOL.

Soul Pattinson traces its roots back to 1872, when Caleb Soul and his son Washington opened a pharmacy in Sydney. It listed in 1903 and has evolved into a diversified investment house spanning private equity, shares and other investments.