The long-awaited simplification of one of Australia's most complicated corporate structures is finally underway.
Brickworks Ltd (ASX: BKW) and Washington H. Soul Pattinson (ASX: SOL) have announced plans to merge, ending decades of tangled cross-shareholdings and creating a $14 billion investment powerhouse in the process.
So what does Macquarie think of the deal?
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Cutting through the complexity
Macquarie sees simplification as a key positive for the deal, and one that may finally allow the market to value the combined entity on clearer fundamentals.
At its core, the proposed merger will collapse the long-standing cross-holding structure between Brickworks (which owns 26% of Soul Patts) and Soul Patts (which owns 43% of Brickworks).
A new entity (TopCo, to be renamed Soul Patts) will issue shares to shareholders of both businesses (excluding cross-held stock), resulting in a single listed company.
The new shareholding in TopCo will be approximately 72% owned by existing Soul Patts shareholders, 19% by Brickworks shareholders, and 9% by new investors.
How does this change the valuation?
Macquarie has lifted its 12-month price target for Brickworks to $32.20, up from $26.00, largely reflecting the uplift in the share price following the merger news. Brickworks shares were trading at $34.63 at the time of writing.
That said, Macquarie had a warning about its valuation for Brickworks. If you apply the current Soul Patt's share price to the merger ratio announced as part of the deal, it implies that the valuation for Brickworks shares is actually $35.26 per share.
That's slightly higher than the current Brickworks share price, but it's based on Soul Patt's share price, which trades at a 40% premium to its own net asset value (NAV). If that premium compresses, both share prices are vulnerable to short-term volatility.
Foolish bottomline
Macquarie likes the deal. It's a long-overdue simplification that removes years of valuation noise, enhances diversification, and creates a top-tier Australian investment company with genuine scale.
But that doesn't necessarily make it a screaming buy at current levels. With Brickworks trading above Macquarie's price target and Soul Patt's carrying a hefty premium to NAV, some of the short-term upside appears to be already priced in.
Still, for long-term investors, this merger could mark the beginning of a clearer, simpler, and better-valued story for both sets of shareholders.
