The Milton Corporation Ltd (ASX: MLT) share price has been a major winner on the ASX broad indices over the last few weeks.
Whereas the S&P/ASX 200 Index (ASX: XJO) has slipped 0.4% into the red over the last month, the investment company's shares have climbed 22%.
Let's investigate further.
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What tailwinds are behind the Milton share price?
The major takeout weighing in on the Milton share price right now is the proposed merger with Washington H. Soul Pattinson & Company Ltd (ASX: SOL).
Back in June, the company announced it had entered into a scheme implementation agreement with Soul Pattinson with the latter proposing to acquire 100% of the outstanding Milton shares it does not already own.
Under the proposal, Milton shareholders will receive several incentives. Firstly, they will receive a "scrip consideration" that reflects a 10% premium to Milton's net tangible assets (NTA) pre-tax.
Next, they will receive a fully franked Milton special dividend of up to 37 cents per share, in addition to Milton's final dividend of 8 cents per share. Shareholders will also access a portion of Soul Pattinson's full franked FY21 dividend, estimated at 36 cents per share.
If the proposal is successfully voted through, Milton shareholders will own 33.8% of the new entity.
What's happened since?
On 3 September, the company announced that both entities had finalised the exchange ratio for the proposed merger.
Both parties agreed that Milton shareholders will receive 0.1863 Soul Pattinson shares for every Milton share owned, if approved.
This exchange ratio implied a total value of $7.18 per Milton share based on Soul Pattinson's share price of $35.76 at the timing of the release.
At the time, that value signified a 5.6% premium to the Milton share price. However, Milton shares are now exchanging hands at $7.38 apiece and Soul Pattinson shares are trading at $38.12.
As such, the economics of the exchange ratio now implies a total value of $7.62 per Milton share at Soul Pattinson's current share price. This represents a premium of 3.2% to the current Milton share price.
As a result, Milton's independent board has maintained its recommendation that shareholders vote in favour of the proposal. An independent expert has also concluded that the scheme is in the best interests of Milton shareholders.
What has management said?
Regarding the proposal, Committee of Independent Milton Directors' chair Graeme Crampton said:
The exchange ratio confirmed today demonstrates the implied value in the proposed transaction for Milton Shareholders and underscores the Independent Directors' recommendation. We continue to recommend that shareholders vote in favour of the Scheme in the absence of a superior proposal and subject to the Independent Expert continuing to conclude that the Scheme is in the best interests of Milton Shareholders.
Milton share price snapshot
The Milton share price has climbed 54% this year to date, extending the previous 12 months' return of 80%.
Both of these results have outpaced the broad index's return of around 25% over the past year.
