Soul Patts, Milton Corp plan $10.6 billion merger

Soul Patts, Milton Corp plan $10.6 billion merger

Two Sydney-based investment houses with more than 230 years in operation between them are looking to merge after Washington H Soul Pattinson (ASX: SOL) made a scrip-based offer to acquire all shares in Milton Corporation (ASX: MLT).

If the deal goes ahead it would create a group with a $10.61 billion market capitalisation based on recent share prices, likely propelling the combined entity into the ASX's 50 largest companies.

Both companies are chaired by Robert D Millner whose family is already a major shareholder in Soul Patts (also known as 'WHSP'), which in turn already has around 3 per cent of Milton Corp's shares according to last year's annual report. 

And the investments go both ways with Milton's latest portfolio report showing SOL shares represented 7.6 per cent of its assets, making the suitor its second-largest investment after Commonwealth Bank of Australia (ASX: CBA).

Due to this overlap Millner has sat out of the committee of independent directors formed at Milton to assess the merits of Soul Patts' proposal, whereby Milton shareholders would receive SOL shares and three fully franked dividends totalling 52 cents per share.

The companies estimate the offer provides a 10 per cent premium to Milton's pre-tax net tangible assets (NTA) and a significant premium of 20 per cent compared to the last closing price of $5 per share, with expectations the total market capitalisation will look more like $11 billion.

Milton's independent committee has unanimously recommended that shareholders vote in favour of the scheme in the absence of a superior proposal, with a vote on the deal currently in the pipeline for mid-September.

"We are pleased to present the opportunity to merge Milton and WHSP to our shareholders. The independent board committee has considered the offer and determined that this merger creates compelling value for our shareholders," says Milton's independent board committee chair Graeme Crampton.

Milton's CEO and managing director Brendan O'Dea says the transaction would create a unique investment company by bringing together Milton's demonstrated long-term capabilities in listed equities and WHSP's successful record of generating strong returns for shareholders across a range of actively managed public and private investments.

"We would be excited to work with the WHSP team to create a unique diversified investment opportunity for the benefit of our collective shareholders," O'Dea says.

WHSP managing director Todd Barlow describes the proposed merger as transformative.

"Milton shareholders are being offered scrip at a significant premium to both Milton's share price and NTA, the potential benefits of three fully franked dividends, and exposure to WHSP's diverse portfolio of assets which have historically delivered significant outperformance over the long term," he says.

"We look forward to progressing this merger with Milton, with the view of welcoming Milton's management team and up to 31,000 new shareholders and the benefits this will bring to both companies."

With its history dating back to 1872, WHSP has a diversified but more concentrated investment strategy with stakes in companies across a range of industries including TPG Telecom (ASX: TPG), Brickworks (ASX: BKW), New Hope Group (ASX: NHC), Australian Pharmaceutical Industries (ASX: API) and others.

Milton Corporation, founded in 1938, invests on average in much larger ASX-listed companies such as Westpac (ASX: WBC), Macquarie Group (ASX: MGQ), BHP Group (ASX: BHP), CSL (ASX: CSL), Wesfarmers (ASX: WES), National Australia Bank (ASX: NAB) and Woolworths (ASX: WOW), among others.

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