We had some big news out this morning regarding two of the ASX's oldest companies. Investment company Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) announced it has proposed a merger with the listed investment company (LIC) Milton Corporation Limited (ASX: MLT).
Soul Patts was founded in 1903, and Milton in 1938. So this might be the closest thing to an ASX-style 'old-money wedding' investors have seen.
As my Fool colleague Brooke Cooper covered this morning, Soul Patts informed the market it has offered to buy all Milton shares that the company doesn't yet own. Investors would receive a combination of Soul Patts scrips and three fully franked dividends worth up to 45 cents per share.
The complete offer is worth around $6 a share, which was a 20% premium to Miton's share price at yesterday's close.
Milton's directors have already given their universal approval for the deal. Of course, today Milton shares have rocketed 16% to $5.80 on the news.
Soul Patts is about the closest you can get to an ASX LIC without attaching the LIC label. Both Milton and Soul Patts have huge portfolios of ASX shares as holdings. So investors are essentially buying into these portfolios when they buy Milton or Soul Patts shares.
At the companies' current share prices, Milton has a market capitalisation of $3.9 billion, and Soul Patts $7.25 billion. As such, the combined company would be worth around $10.8 billion.
But what kind of assets would this new company own?
A merger of equals?
To start with, take note of what Soul Patts said would be a result of this merger.
For both WHSP and Milton shareholders, the merger is expected to provide:
- Greater portfolio diversification;
- Additional cash available for future investment into WHSP's growth asset classes;
- Access to new investment classes including private markets, real assets, credit and international equities;
- Higher cash generation from increased portfolio dividends;
- Total number of WHSP shareholders following the merger of up to 60,000 is expected to provide greater liquidity;
- An increase in the market capitalisation of WHSP from $7.2 billion to more than $10.8 billion, resulting in increased index participation; and
- Milton's management team will complement WHSP's existing investment expertise.
Let's take a look at Soul Patts' existing portfolio.
What shares does Soul Patts already own?
Despite its size, Soul Patts has a rather concentrated portfolio of ASX shares that it invests in. Its largest holding is a 43.9% stake in building materials company Brickworks Limited (ASX: BKW). This is tempered by the fact Brickworks in turn owns a comparable chunk of Soul Patts shares.
Other than Brickworks, Soul Patts owns a 25.3% stake in TPG Telecom Ltd (ASX: TPG), a 50% holding of coal miner New Hope Corporation Limited (ASX: NHC) and a 19.3% stake in Australian Pharmaceutical Industries Ltd (ASX: API).
Some smaller stakes include an 8.6% share in the BKI Investment Co Ltd (ASX: BKI), a 19.9% stake in Palla Pharma Ltd (ASX: PAL) and a 22.6% holding of Clover Corporation Limited (ASX: CLV).
And don't forget the current 3.3% stake that Soul Patts already has in Milton. Soul Patts also has a portfolio of unlisted businesses that it is invested in. These include Pitt Capital Partners and Ampcontrol Pty Ltd.
What about Milton?
Turning to Milton, and we have a rather different portfolio. As of June 30 2020, Milton had more than 70 ASX companies in its portfolio – consisting of a combination of ASX blue-chip shares, real estate investment trusts (REITs) and other LICs.
As of 31 May 2021, Milton's top holdings included Commonwealth Bank of Australia (ASX: CBA) with an 8.8% portfolio weighting, Soul Patts itself with a 7.6% weighting, Westpac Banking Corp (ASX: WBC) at 7.4%, Macquarie Group Ltd (ASX: MQG) at 6.9% and BHP Group Ltd (ASX: BHP) at 6.5%. Its other top 20 holdings are all ASX blue-chip shares along these lines.
So, if the merger goes ahead, the newly combined company will have a very broad portfolio of ASX shares and other assets across different classes. It will be interesting to see what these new chapters for two very old ASX stalwarts will bring for investors going forward.
