Brickworks Ltd (ASX: BKW) shares are up 12% to $30.92 on Monday after announcing a $14 billion merger with diversified investment house Washington H. Soul Pattinson and Company Ltd (ASX: SOL).
The deal, described as transformative by both companies, will see Brickworks and Soul Patts combine under a newly capitalised ASX-listed entity, known for now as TopCo, creating a diversified powerhouse with greater scale, a stronger balance sheet, and a simplified corporate structure.
What was announced?
Under the agreement, Brickworks shareholders will receive 0.82 shares in the new entity for every Brickworks share they hold.
This values Brickworks shares at $30.28 each, which is a 10.1% premium to their last close and a 21.9% premium to their three-month VWAP.
Soul Patts shareholders will receive one new share for every existing share they own.
Once the merger is complete, Soul Patts shareholders will own around 72% of the new company, while Brickworks shareholders will hold approximately 19% and new TopCo shareholders will own the balance.
Why merge?
The release notes that for Soul Patts, the deal simplifies the structure, removes the long-standing cross-shareholding with Brickworks, and provides greater exposure to Brickworks' building products and industrial property portfolio.
Soul Patts' CEO, Todd Barlow, believes the merger "makes a lot of strategic and financial sense. It simplifies the structure, adds scale, and creates a more investable company."
For Brickworks, the merger unlocks access to Soul Patts' diverse portfolio of assets, including private equity, credit, and listed equities. Brickworks CEO Mark Ellenor believes the time was right to combine forces, adding that the merged entity will "become a well-resourced and more diversified group delivering long term value for our shareholders."
Both boards have unanimously recommended the deal, in the absence of a superior proposal, and subject to shareholder approval and the independent expert's report.
What's in it for shareholders?
Brickworks highlights that its shareholders get access to a more diversified portfolio, exposure to Soul Patts' strong dividend history, and a pipeline of new investment opportunities.
Lead independent director, Deborah Page, said:
We believe entering into this merger maximises value for Brickworks shareholders. The opportunity to unwind the cross-shareholding will offer Brickworks shareholders the potential to enhance the underlying value of Brickworks' own assets as well as participate in the diversified strategy of the merged entity.
Whereas Soul Patts shareholders benefit from greater exposure to Brickworks' high-quality assets in building products and industrial property (including its 50% stake in the Goodman Group (ASX: GMG) joint venture), and improved financial flexibility for future investments.
Soul Patts' lead independent director, David Baxby, said:
This is a pivotal step forward in a relationship that has evolved over many years through mutual investment and strategic alignment. The Board has unanimously endorsed the merger, recognising the significant value it will unlock for shareholders of both companies. By simplifying the cross-shareholding structure and combining our strengths, we create a larger company with greater scale and stronger long term growth potential.
