Washington H. Soul Pattinson is to buy fellow Sydney investor, Milton Corporation via a scheme of arrangement merger – a move that will create a $10 billion investment group.
The scheme, announced Tuesday, values Milton at $6 a share and has been unanimously recommended by the independent directors of Milton, and unanimously endorsed and supported by the board of Soul Patts.
Soul Patts shares rose 0.8% to $30.50, while Milton shares jumped 16% to $5.80, well short of the suggested price and a sign that investors do not see a counter-bidder emerging.
Both companies are chaired by Sydney businessman, Robert Milner and have been considered by analysts to be close for decades via board and shareholding links.
With Soul Patts carrying a market value of $7.2 billion before the bid and Milton $3.3 billion, the combined company could have a market value of more than $10 billion, which would put it above Australian Foundation’s $9.3 billion in the ranking of investment companies.
Soul Patt’s biggest investments are shareholdings in TPG Telecom, Brickworks, New Hope, Australian Pharmaceutical, BKI and New Clover. It has a host of smaller investments in listed companies (like Retail Food Group) and unlisted businesses.
Soul Patts already owns 3.3% of Milton. Milton closed at $5 on Monday and had a net asset backing of $5.60 at the end of May. The $6 a share offer implies a 20% premium.
“This is a transformative merger bringing together two of Australia’s great investment companies to create a $10 billion group with enhanced liquidity, diversification and access to a broad range of asset classes,” Soul Patts CEO Todd Barlow said in the statement.
“Milton shareholders are being offered scrip at a significant premium to both Milton’s share price and net tangible assets, the potential benefits of three fully franked dividends, and exposure to (our) diverse portfolio of assets which have historically delivered significant outperformance over the long term.“
“We look forward to progressing this merger with Milton, with the view of welcoming Milton’s management team and up to 30,000 new shareholders and the benefits this will bring to both companies.”
Milton shareholders will be offered Soul Patts shares with Milton shares to be valued at a 10% premium to adjusted net tangible assets.
As part of the scheme, Milton shareholders will be entitled to the benefit of three fully franked dividends totalling 52 cents a share
This includes an assumed 8 cent final Milton dividend for 2020-21, a special Milton dividend of up to 37 cents, and for shareholders on record at the time of the Soul Patts dividend, participation in the that company’s 2021 financial year indicative final dividend, assumed to be equivalent to 7 cents for each Milton share.
In addition, if all of these dividends were paid, 22 cents a share in franking credits will be distributed to Milton shareholders.
