Brickworks and Soul Patts pare gains as analysts see merger benefits
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The news: Shares in investment house Washington H Soul Pattinson and building products group Brickworks are both trading lower, after they soared on Monday following the announcement of their proposed $14 billion merger.
The numbers: Brickworks was down 1.5% to $34.56 at 12:30pm AEST, having ended 27.6% higher on Monday. Soul Patts fell 1.1% to $42.55 after closing 16.4% higher.
Macquarie analysts kept its 'neutral' rating on Brickworks and hiked its target price from $26 to $32.20.
Jarden bumped its target price from $25 to $32.30, but Monday's share price jump saw it downgrade the stock from 'overweight' to 'neutral'.
The context: Jarden analysts said the merger will provide a number of "key benefits" to Brickworks, including removing the "complicated" cross-holding structure with Soul Patts, improving liquidity and access to capital, and increase diversification of assets and operations.
What they said: "Whilst a potential merger has been discussed for years, we are interested in the timing given the current state of end market cycles and operational performance," Jarden's analysts said.
"With both Australian and US housing markets trending at cyclical lows, and with relative low investor interest, arguably underwhelming US operating performance to date, a sufficient premium could now more than justify the transaction costs.
"A well capitalised 'MergeCo.' would also be arguably better placed to participate in any further US building sector consolidation, in our view."
The sources: Jarden research, Macquarie research
