Perpetual vs. Brickworks and Soul Pattinson

Two of Australia’s oldest and most respected industrial companies have come under fire from one of Australia’s oldest and most respected funds management firms which is sure to set the scene for a heated battle.

After previous overtures and discussions with the management about ways to ‘unlock value’ Perpetual (ASX: PPT) and associates have convened a meeting of Brickworks (ASX: BKW) to vote on firstly a proposed demerger distribution transaction and secondly a proposed cancellation of shares transaction.

At the same time Perpetual and associates has also requested that the directors of Washington H. Soul Pattinson (ASX: SOL) convene a general meeting of Soul Patts to consider resolutions including a selective reduction of capital by cancellation of Brickworks shares and an in specie distribution to shareholders of all the shares held by Soul Patts in TPG Telecom (ASX: TPM).

The premise for these actions by Perpetual is a long-established cross-shareholding between Brickworks and Soul Patts which effectively makes the two companies’ takeover proof. The boards of both Brickworks and Soul Patts see the cross-shareholding as a benefit and strength, while Perpetual – which is a substantial shareholder in both companies – views it as a negative and a road block from the companies being accurately valued by the stock market.

The shareholder meeting booklet accompanying the call for a general meeting of Brickworks runs to over 150 pages. One of the difficulties for minority shareholders is going to be analysing what is likely to be quite divergent opinions by each side across a range of issues including the best way to realise shareholder value through to the eventual taxation consequences of the proposals.

Foolish takeaway

Corporate activity is often a positive for the share price of a target company which can create interesting investment opportunities. Brickworks’ share price has increased from $14 to $15 since the meeting booklet was released on Wednesday, while Soul Patts’ share price has gone from $14.40 to $15.40 over the past 2 days as well.

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Motley Fool contributor Tim McArthur owns shares in Perpetual Ltd.

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