THE Brickworks chairman, Robert Millner, has defended the company's four-decade long "strategic alliance" with conglomerate Washington H. Soul Pattinson, but said it has hired an external adviser to review its structure and gauge options to unlock shareholder value.
Mr Millner made his comments at the brickmaker's annual meeting, which was marked by what he said were "uncalled for" questions about corporate governance, the role of its independent directors and his family's grip on both companies.
The prominent fund manager Matt Williams from Perpetual Investments challenged Brickworks' independents over their lack of support for his push to nominate an outside director to the Soul Patts board, and questioned why they had decided to back the re-election of Mr Millner's son Thomas instead of Perpetual's nominee, the Sydney corporate adviser Robert Fraser.
"[The] chairman is out of the room with his cousin the deputy chairman, but effectively he is right in the room because you're taking the recommendations of Soul Pattinson," Mr Williams said. "That's a pretty disappointing attitude for independent directors to take."
The independent directors had met separately and taken "the independent view to follow the Soul Patts recommendation" to back Thomas Millner, countered one of them, Robert Webster, saying the conglomerate had delivered "fantastic results over a long period of time".
Perpetual, which has about $600 million invested in Brickworks and Soul Patts holding 12 per cent stakes in each, is seeking to weaken the Millner family's control of both boards to break the cross shareholding between the companies.
Brickworks owns 43 per cent of Soul Patts, while Soul Patts holds 44 per cent of Brickworks. With just about 8 per cent of the equity, the Millner family dominates both boards and can use the crossholding to effectively dash any motions by other shareholders.
Perpetual says the crossholding has held back the valuations of both stocks $1.5 billion in underlying value could be realised unwinding the arrangement. But Brickworks and Soul Patts say it has acted to smooth out economic cycles and brought "superior returns".
Robert Millner would not say who Brickworks' independent adviser was, but that any decisions would be made when the outcome of the process to sell its 60 per cent stake in Queensland miner New Hope was known. Brickwork' managing director, Lindsay Partridge, said the December-half result should be similar to the six months to June, propped up by the investment in Soul Patts. But building products would deliver lower earnings due to the weak housing markets, with revenue from the division down 10 per cent in the first quarter.
Brickworks' earnings before interest and tax slumped 12 per cent to $132 million in the past financial year. The company has sacked 239 workers since August last year. Its workforce of 1328 would "unfortunately reduce further," he said.
Frequently Asked Questions about this Article…
Why is Brickworks reviewing its strategic alliance with Washington H. Soul Pattinson?
Brickworks chairman Robert Millner said the company has hired an external adviser to review the four-decade strategic alliance with Washington H. Soul Pattinson and to gauge options to unlock shareholder value. The review follows shareholder pressure and debate about whether the cross-holding arrangement benefits or holds back valuations.
What is the cross shareholding between Brickworks and Soul Pattinson and why does it matter for investors?
Brickworks owns 43% of Soul Pattinson while Soul Pattinson holds 44% of Brickworks. That cross shareholding, combined with the Millner family's roughly 8% equity stake and board dominance, can effectively block motions from other shareholders. Perpetual Investments argues the arrangement has suppressed valuations, while Brickworks and Soul Pattinson say it smooths economic cycles and has delivered strong returns.
Who is challenging Brickworks' board structure and what are they asking for?
Fund manager Perpetual Investments, represented by Matt Williams, has challenged Brickworks' independent directors and sought to weaken the Millner family's control by nominating an outside director for the Soul Pattinson board. Perpetual holds about $600 million invested across the two companies and has roughly 12% stakes in each.
What did Brickworks say about who is advising the company on the review?
Robert Millner would not disclose the identity of the independent adviser. He said any decisions resulting from the review would be made after the outcome of the process to sell Brickworks' 60% stake in Queensland miner New Hope is known.
How have Brickworks' recent financial results and earnings been described?
Brickworks reported earnings before interest and tax (EBIT) of $132 million for the past financial year, a 12% slump compared with the prior period. Management expects the December-half result to be similar to the prior six months, helped by the investment in Soul Pattinson.
What is happening to Brickworks' building-products division and what does that mean for earnings?
Brickworks said building-products revenue was down about 10% in the first quarter due to weak housing markets. Management warned building products would deliver lower earnings, which has contributed to the overall decline in group earnings.
Has Brickworks made workforce changes recently, and should investors be aware?
Yes. The company has sacked 239 workers since August last year and reported a workforce of 1,328 employees, noting that the headcount would 'unfortunately reduce further.' Investors should factor restructuring and cost impacts into near-term performance expectations.
What is Perpetual’s view on the potential upside from unwinding the Brickworks–Soul Pattinson cross-holding?
Perpetual Investments has argued the crossholding has held back valuations and estimated that about $1.5 billion in underlying value could be realised by unwinding the arrangement. Brickworks and Soul Pattinson dispute that, saying the structure has delivered 'superior returns' and helped smooth out economic cycles.
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