Dissident shareholders Perpetual and Mark Carnegie have launched a bold plan to unlock a 45-year cross shareholding between Brickworks and Soul Pattinson that could redistribute billions of dollars of value to investors.
With about 8 per cent of Soul Pattinson, the Millner family's long-standing control of the two companies and their sprawling $5 billion of assets is under direct threat, with the matter likely to end up in court.
"I come in peace, but I'm prepared for war," Mr Carnegie said of the proposal.
Perpetual and Mr Carnegie have convened a meeting of Brickworks shareholders for November 25 to cancel the Brickworks holding in Soul Pattinson in return for cash and a promissory note. They have also requisitioned a meeting of Soul Pattinson to consider distributing its 27 per cent stake in TPG Telecom to shareholders.
Under a protective cross shareholding established in 1969, Soul Pattinson and its associates hold 48 per cent of Brickworks, with the building materials company holding 43 per cent of Soul Pattinson.
Legal advice to the dissidents claims that as a "related party", Soul Pattinson and its associates cannot vote on the resolution to cancel the Brickworks stake in Soul Pattinson.
If correct this could open the door for the cross-holding to be unravelled since, between them, Perpetual and Mr Carnegie control 12.5 per cent of Brickworks shares and only need shareholders supporting a similar number of shares to carry the day, since only a simple majority votes is needed.
Mr Carnegie said "it would be a close-run thing" to concede.
The tax implications of the proposal are far from clear, especially for shareholders who bought into Brickworks after the introduction of the capital gains taxation legislation in 1985. Perpetual fund manager Matt Williams estimated that of the proposed $2 billion asset distribution, the tax liability could be as high as $200 million.
Perpetual and Mr Carnegie have sought to unravel the cross holding for some time, and have been critical of the poor performance of Brickworks.
The TPG shares Brickworks would receive on a pro-rata distribution are worth about $400 million. Additionally, based on a Soul Pattinson price of $15.75 a share, the Brickworks holding is worth $1.6 billion, rising to $1.8 billion at $18 a share.
If the liquidation proposal wins support, Perpetual and Mr Carnegie have included provision for Soul Pattinson to pay part of the funds via a promissory note, which would give it the flexibility to raise the funds via asset sales over the next year or so.
Brickworks and Soul Pattinson told shareholders to take no action in response to the proposal.
The dissident shareholders estimate if the deal succeeds, Brickworks and Soul Pattinson shares could be worth $22 each.
What Perpetual proposes
Distribute Soul Patts’ 27% stake in TPG
Telecom to shareholders.
Cancel Brickworks stake in Soul Patts for cash and promissory note.