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Behind Washington H Soul Pattinson’s offer for Milton
The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) (WHSP) share price is on watch today after the company announced it’s acquiring Milton Corporation Limited (ASX: MLT).
WHSP buys Milton
The old investment house is going to buy Milton the listed investment company (LIC).
Milton shareholders will receive WHSP shares as their payment, with Milton shares to be valued at a 10% premium to the Milton adjusted NTA (net tangible assets).
In a way to try to sell the deal to Milton shareholders, they will be entitled to three fully franked dividends totaling 52 cents per share.
That includes an assumed 8 cent per share Milton FY21 final dividend. A special FY21 dividend of up to 37 cents per share. Finally, participation in the FY21 final WHSP dividend which is assumed to be 7 cents per Milton share. These dividends will come with 22 cents per share of franking credits.
The implied offer of $6 represents a 20% premium to $5, being the closing price of Milton shares on 21 June 2021.
Milton’s independent directors have unanimously recommended the deal, unless another offer comes along.
What are the benefits of the deal?
WHSP said this merger will create a larger, more diversified investment company. That business will be focused on achieving long-term market outperformance, continuing long-term growth in dividends and growing portfolio allocations to new and alternative asset classes.
The total number of WHSP shareholders after the merger will increase up to 60,000.
An index reweighting would result from market capitalisation increasing from $7.2 billion to $10.8 billion.
Management comments
WHSP Managing Director Mr Todd Barlow said: “This is a transformative merger bringing together two of Australia’s great investment companies to create a $10 million group with enhanced liquidity, diversification and access to a broad range of asset classes.”
Summary thoughts about this deal and the WHSP share price
WHSP must think it’s compelling to do this deal. Considering the premium that the WHSP share price is valued at compared to its own assets (NTA), this could be an effective way to sort of do a large capital raising at a price that’s a premium to the WHSP NTA.
I wonder what WHSP plans to do with the Milton portfolio. It wouldn’t surprise me if it sold quite a lot of those portfolio shares to fund other asset purchases.
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