I think that the Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) share price is a buy today after the appeal victory for the merger between TPG Telecom Ltd (ASX: TPM) and Vodafone Australia.
What happened?
As my colleague James Mickleboro covered here, the Federal Court ruled that the merger between the two large telcos wouldn't substantially lessen competition in the mobile market and therefore there was no cause to block the merger.
What does this mean for Soul Patts?
Well, in early reaction the Soul Patts share price is up by more than 4%. Soul Patts is an investment conglomerate and it owns 25.3% of TPG's shares. TPG is currently in a trading halt, so Soul Patts is the best way for investors to react to the merger approval.
The process still needs to go through some other approvals and the ACCC has 28 days to appeal the decision. Vodafone and TPG are already planning where the initial 650 5G sites will be located in Sydney, Melbourne, Brisbane, Adelaide, Perth, Canberra and the Gold Coast. The merger should be completed by mid-2020.
After the merger, Soul Patts should own around 12.6% of the combined entity. Soul Patts has said they are highly complementary businesses with significant synergy potential.
What else?
There will be a pre-merger special dividend to TPG shareholders and a pre-merger in-specie dividend of the Singapore mobile business to TPG shareholders.
The combined business will pay out larger dividends than TPG is currently paying, which will benefit Soul Patts over the longer-term.
Is Soul Patts a buy?
The diversified investment business has a long-term record of outperforming the market. It has a defensive portfolio and its future looks more promising with the merger approval.
It now has a forward grossed-up dividend yield of 3.9% and I think it will remain a buy if its share price remains at under $23, maybe more, depending how the TPG share price reacts.