Soul Patts and Brickworks to combine portfolios under $14 billion merger

A cross-shareholding between Washington H. Soul Pattinson and Company (ASX: SOL) and Brickworks (ASX: BKW) dating back to 1969 will be simplified under a planned $14 billion merger, bringing their respective portfolios under the one roof while paying down a "significant portion" of Brickworks' outstanding debt.

Sydney-based boutique investment advisory firm Aitken Mount Capital Partners has fully underwritten $550 million in commitments for new shares in the combined company, conditional on the merger going ahead.

Because Soul Patts owns 43 per cent of Brickworks and the latter also owns 26 per cent of the former, both companies have taken steps to ensure the deal is assessed by independent parties and will be excluded from voting their shares in the respective schemes.

The proposed merger, implying a $30.28 value per BKW share at a 10 per cent premium to the last closing price, has been unanimously recommended by the Soul Patts board of directors and the independent directors of Brickworks.

"Merging Soul Patts with Brickworks makes a lot of strategic and financial sense. It simplifies the structure, adds scale, and creates a more investable company," says Soul Patts' CEO and managing director Todd Barlow, who is also slated to lead the merged group in the same role.

"In many ways Soul Patts and Brickworks have evolved together and shared in the capital stability provided by our cross-shareholding over the past 56 years."

Barlow says the cross-shareholding served an important purpose over the years by achieving diversification of earnings, promoting long-term investment decisions and creating significant long-term value for shareholders.

"However, we believe the combined business will be very well diversified and in an even stronger position to deliver enduring value for all shareholders."

Through the proposed deal, Soul Patts shareholders would gain greater exposure to Brickworks' building products business across Australia and the US, as well as its 50 per cent interest in joint ventures with property company Goodman Group (ASX: GMG).

For their part, Brickworks shareholders would have more exposure to a diversified portfolio of assets in asset classes including private equity, credit, listed equities and property. The parties also plan to cover a significant part of Brickworks' net debt, which totalled $721 million at the end of 2024 with gearing of 22 per cent.

"Brickworks has undergone significant evolution over the past few decades, with the growth in value of its property assets and its building products portfolio," says Brickworks CEO Mark Ellenor.

"The time is now right to combine with Soul Patts, bring our portfolios under one investment company, and become a well-resourced and more diversified group delivering long term value for our shareholders."

The proposed new entity has been labelled as TopCo to avoid confusion but will ultimately be called Washington H. Soul Pattinson and Company Limited, trading with the same ticker SOL on the Australian Securities Exchange (ASX:).

Existing Soul Patts shareholders will have a 72 per cent in the combined group, while Brickworks shareholders and new TopCo shareholders will have 19 per cent and 9 per cent respectively.

"This is a pivotal step forward in a relationship that has evolved over many years through mutual investment and strategic alignment," says Soul Patts' lead independent director David Baxby on behalf of the board.

"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."

These sentiments were echoed by Deborah Page, lead independent director at Brickworks.

"We believe entering into this merger maximises value for Brickworks shareholders," she says.

"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."

The proposed board for the merged group is almost identical to the existing Soul Patts board, with the addition of Malcolm Bundey from the Brickworks board. Robert Millner AO and Todd Barlow currently serve on the boards of both companies.

A subsidiary board will be selected as well for the building products division. 

The $550 million in commitments for new TopCo shares, led by Aitken Mount Capital Partners as sole lead manager, are planned for issue at no discount to SOL's last close of $36.93.

At the time of publication SOL shares were up 12.62 per cent at $41.59, and BKW shares had surged by almost 20.74 per cent to $33.215.