Home Australian Equities MLT – The Transformation of an ‘Old Style’ LIC Giant

MLT – The Transformation of an ‘Old Style’ LIC Giant


On 22 June 2021 Milton Corporation Limited (MLT) and Washington H. Soul Pattison (WHSP) announced both parties had entered into a scheme of arrangement under which WHSP proposes to acquire 100% of the share capital of MLT that it currently does not own.

Under the proposed transaction, which has been unanimously recommended by the Committee of Independent Directors of MLT, MLT shareholders will receive scrip consideration reflecting a 10% premium to pre-tax NTA in addition to two fully franked dividends totalling 45 cps and access to a FY21 dividend from WHSP.

Based on prices on 22 June 2021, following completion of the proposed transaction, existing WHSP shareholders will own 66.2% of the combined entity with MLT shareholders owning the remaining 33.8%. RRM notes however that the WHSP share price jumped 8.5% on 23 June.

It is not RRM’s role on how to advise MLT shareholders but we would note the following. The 10% premium to NTA compares to what had been an approximate 5% discount to NTA. The three to five year investment portfolio plan of WHSP involves a material increase in private market assets. Having spoken to the CEO of WHSP, Todd Barlow, RRM is favourably predisposed to this asset class / portfolio evolution strategy, and in part because we are well aware of the potentially attractive risk-adjusted returns in the private market space in Australia.

The simplest way to view WHSP is like that of a large US-style family office. It is well resourced, experienced and very well connected. And connections particularly matter in the private market space. There is also a very strong focus on capital preservation, which is a common hallmark of family office portfolio management.

The combined entity will also over time, based on the three to five year plan, become more of a true through market cycle investment vehicle given its diversification. That diversification will be by asset class, geography, sector and presumably be relatively ‘factor’ neutral (growth, value, market cap size, etc).

The other point RRM would make is there will not be any material changes to the existing MLT portfolio, at least not in the foreseeable future. Perhaps a better way to state this is that RRM would not anticipate any ‘style drift’ in relation to the existing MLT domestic equities portfolio. This is a friendly merger. The principal shareholder in WHSP, Robert Millner is the Chairman of MLT – i.e., well familar with the style and strategy, not to mention that WHSP is an existing share holder in MLT. Furthermore, the capital account status of MLT precludes any potential material portfolio turnover in any financial year period, even if it was on the cards.

RRM likes this stability – an MLT share holder is not being put in a situation of having to choice here and now type thing. The portfolio evolution will occur over time rather than over the shorter term.

Of course, an existing MLT shareholder can simply sell on market if concerned or unsure about the combined vehicle. A review of the cross-correlation heat map analysis contained in this publication indicates a number of highly correlated strategies, not surprisingly including AFI and ARG, for example. That is, comparable alternatives exist to MLT.