Surely the time to use your own Scrip (shares) to takeover another company is when your shares are trading at a decent premium to NAV.  It makes far more sense that using cash.  The decent premium in the SOL SP is the reason why SOL can pay a premium-to-NTA/NAV for MLT.  It's a win/win - being a positive transaction for both MLT and SOL shareholders.  SOL have been involved with MLT for some time - with Rob Millner being the Chairman of the boards of both companies, and SOL being a shareholder in MLT.  MLT also lists SOL as the second largest position in their own portfolio, behind CBA.  SOL shares represented 7.6% of MLT's investment portfolio as at 31-May-2021.  Brickworks (BKW) were MLT's 14th largest position, being 1.9% of their portfolio.  BKW own 39.4% of SOL and SOL own 45.4% of BKW.  MLT is Australia's 3rd largest LIC, and the two that are bigger, AFI and ARG, do not hold either SOL or BKW as top 20 portfolio positions.  It is clear that Rob Millner and SOL's influence on MLT looms large, and it makes sense to roll the two together, particularly as SOL is also an investment company that is ASX-listed, despite not being regarded as a LIC (listed investment company).  

I do not hold either of them currently, or AFI or ARG.  But if I did hold SOL and/or MLT, I would not have any issue with this merger/takeover.

In terms of what's in it for WHSP (SOL), this merger or takeover gives SOL access to all of MLT's FUM and moves them up the food chain from an $8 billion company to a $12 billion company, effectively growing their FUM and their overall size by around +50% with one transaction.  It also would make them Australia's 40th largest ASX-listed company, or around there, they'd have a similar market cap to IAG who are currently the 39th largest company listed on the ASX.  Certainly SOL would move up into the ASX50 index.  If SOL then offloaded their coal (NHC) interests, I could see them gaining some further market support and interest.  Not sure if Rob Millner would be inclined to do that however, seeing as he's such a supporter of energy coal and a climate change sceptic, but you never know, economic realism might win out in the end.

Hi Bear,

I see your point but issuing scrip for a company that invests in marketable securities at 10% above its Pre Tax NTA is surely not an optimal outcome compared to raising cash very close to the current SP, taking over something trading at a discount or even taking on some debt at record low interest rates. I do concede that finding $4B in one transaction is a different proposition, but then gain if WHSP wants to expand into different assets wouldn't they need to liquidate some of MLT's investments? Could it be that WHSP is planning on borrowing some money against MLT's portfolio ?? That would make a bit more sense to me.

I'm not a shareholder and don't get me wrong, there's nothing massively wrong with the deal for SOl shareholders, it's just a bit "meh" for my liking.

I think the premium is (a) to ensure this goes through - being a control premium, and (2) to look after their mates at MLT - because there are a lot of overlapping interests and shareholders common to both companies.  Because of the larger than 10% NAV premium that SOL is trading at and because they're using SOL shares to pay for MLT, not cash, SOL can afford the 10% premium easily.  It does set a new bar for LIC takeovers however.  You could be right about them borrowing money against the MLT portfolio, or they could be planning to liquidate some of those assets and invest the money elsewhere.  I have not dug into it that deeply, and don't know if their intentions have been spelled out to that extent at this point.  I would however point out that when SOL used Pengana Capital to takeover HHV - the Hunter Hall Global Value Fund - and also Hunter Hall International (the manager), after Peter Hall shocked the investment community by selling out to SOL and walking away from public funds management altogether, the SOL-controlled Pengana (PCG) sold all but one of the positions within HHV - renamed it PIA (Pengana International Equities) and it very soon bore zero resemblance to what Peter Hall used to hold in HHV.  This was not long after Trump won the US Presidential election a few years back and gold did not rise as Peter Hall had expected, so his portfolio positioning seemed very poor in hindsight.  After PCG sold those gold miner positions (including SAR - which has now merged with NST), all of them did actually rally significantly, eventually peaking in late 2020, for now.  PIA have NOT done well since, with their post-tax NTA being lower than their pre-tax NTA, suggesting they have more capital losses (tax losses) than capital gains on their books, and both of their NTA's are around 12 to 16 cents above their share price, which is actually not too unusual for globally focussed LICs here in Australia - most are trading at discounts to NTA.  However, 5 years ago, PIA were trading at higher levels (as HHV) than where they are trading today, so it has NOT been a positive experience for holders of HHV shares who did not sell and now still own PIA shares.  All that is to say that I would not put it past SOL to make some big changes to the MLT portfolio once they gain control.  They have the track record of doing just that.  And that is possibly why they need to pay a premium to NTA to ensure this deal goes through.

Hi Bear,

I think I initially missed your point that because the deal is scrip that each WHSP shareholder would get more assets per share than they previously did. Good point!

Still though, if they did raise cash at say a 5% discount to the SP then exisitng shareholders would get even more bang for their buck, addtionally they wouldn't have to dance around tax consequences of liquidating some of MLTs portfolio.

Agree with the rest as well