It was interesting to read in the press that the long-running argument between Perpetual Limited (ASX: PPT) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has been resolved via a decision handed down this morning in the Federal Court of Australia.
Soul Patts owns almost 43% of Brickworks Limited (ASX: BKW) which in turn owns just over 44% of Soul Patts, and it's this cross shareholding that Perpetual has been agitating for years to have removed.
Perpetual has long considered that the current market value of the shares in both Brickworks and Soul Patts are significantly below their intrinsic value, and if only the Soul Patts/Brickworks directors would agree, all shareholders would benefit from the release of some of that underlying value via the undertaking of transactions that would unwind the cross shareholding.
However, shareholders of Soul Patts and Brickworks have done pretty well over the last couple of decades and Perpetual's argument that the maintenance of the cross shareholdings is both 'unfair' and 'oppressive' to ordinary shareholders hardly stacks up if you happen to measure these metrics via shareholder returns — brought about by directors always acting in the best interest of each respective company.
Just consider the per annum returns below of each of these businesses and the index:
| 1990 | 2000 | 2010 | |
| Soul Patts | 18.16% | 19.87% | 9.00% |
| Brickworks | 11.34% | 13.38% | 6.44% |
| S&P ASX All Ordinaries Accumulation Index | 9.40% | 7.50% | 2.40% |
And for lovers of dividends, there's this:
Source: Washington H. Soul Pattinson and Company Limited 2017 Half Year Results Presentation
Sure, I can understand that Soul Patts'/Brickworks' market capitalisation is trading at less than the market value of their respective investments, and to investors with hit and run mindset, unlocking some of that value would prove to be irresistible.
But given the outstanding returns that ordinary small shareholders have received over the years, it was pleasing to see the Federal Court slap down Perpetual's argument this morning.
Both Brickworks and Soul Patts have long-term records that all shareholders should be pleased with — as evidenced above — and I agree with the Soul Patts Chairman, Rob Milner, that the litigation brought by Perpetual was both unnecessary and costly.
I can only hope that this will be the end of the matter for management teams at Brickworks and Soul Patts, and allow them to continue serving their 'long-suffering' shareholders in the way they know best: through the continued growth of value and dividends.
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