Investor Soul Pattinson is finalising a large acquisition that is due to be disclosed before Easter, as it seeks to keep at bay dissident shareholders who want to break up a cross-shareholding with Brickworks.
Institutional investor Perpetual, which has 12 per cent of both Soul Pattinson and Brickworks, has been agitating for the cross-shareholding to be unlocked, while Melbourne banker Mark Carnegie has made a quixotic attempt.
Following a detailed review, Brickworks director Rob Webster told analysts on Thursday that there could be considerable downside and not much upside from dismantling the cross-shareholdings.
"We see a lot of risk and costs in changing the current structure," he said. Specifically, there could be $700 million of prospective capital gains tax liabilities if shares in New Hope Coal ($600 million) and TPG (more than $100 million) were distributed to shareholders.
Toowoomba investment adviser Charlie Green said the push by Perpetual to unlock the cross-holdings "represents truckloads of shareholdings holding significantly more than the Millner family".
The one "glaring oversight" of the review, Mr Green said, was the "$350 million holding by the [Millner] family allows you to control $4 billion of investments".
Brickworks holds 42.7 per cent of Soul Pattinson, with Soul Pattinson holding 44.48 per cent of Brickworks.
The cross-shareholding was first entered into in 1969 to protect both companies from unwanted corporate raiders. "We've been very active the past six months looking for investment opportunities," Robert Millner told analysts when discussing the group's latest results on Thursday. "We hope to have something to report to the market in a week or so on one of those large investments."
With $1.6 billion on deposit at end-January, Soul Pattinson has plenty of firepower.
Brickworks continues to drag on the group's performance, with only a 6.6 per cent return on capital, which was "clearly still inadequate", managing director Lindsay Partridge said on Thursday.
Its earnings per share for the six months to January rose to 38¢, from 36.7¢, buoyed by property division gains, with building products earnings flat.
Anecdotal evidence pointed to a continued improvement in NSW, Western Australia and South Australia, he said.
A steady interim dividend of 13.5¢ has been declared. Soul Pattinson suffered a steep slide in earnings per share to 31.02¢ from 41.48¢, with the previous year's figure flattered by a gain from its stake in New Hope Corp. The interim dividend was raised to 18¢ a share from 17¢.
Soul Pattinson shares closed up 12¢ at $14, with brokers saying they were trading at "fair value" depending on the valuation placed on its large holding in New Hope.
Brickworks gained 33¢ to $12.88.