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After 56 years of a unique and enduring corporate alliance, Washington H. Soul Pattinson (ASX:SOL) and Brickworks Limited (ASX:BKW) have formally agreed to merge in a transformative $14 billion deal. For long-time shareholders, analysts, and corporate historians alike, the move marks the end of one of Australia's most iconic cross-shareholdings, and the beginning of a new chapter shaped not by activist campaigns or boardroom tension, but by the quiet pressure of passive investment flows. ABSI this week reviews the deal. 

The roots of the relationship date back 56 years to 1969, when Soul Patts and Brickworks entered into a mutual shareholding agreement. The goal was to stabilise both businesses during a time when corporate raiders and hostile takeovers loomed large. By owning material stakes in each other (ultimately reaching ~43% of Brickworks by Soul Patts, and ~26% of Soul Patts by Brickworks), the companies effectively created a defensive moat. This arrangement also allowed both firms to diversify their earnings, reinforce governance alignment, and pursue long-term investments without short-term shareholder pressure.

Source: Google

The Millner family, a dominant force in both companies across generations, saw the cross-holding as a key strength. And for many years, it was: Soul Patts grew into a diversified investment house with stakes in telecommunications, energy, financial services, and healthcare, while Brickworks expanded across industrial property and building products, both in Australia and the U.S. Together, they represented a slow-and-steady compounder ethos in a market often driven by mining booms and tech hype.

The partnership had real financial merit but as capital markets evolved, the drawbacks of the structure began to show. Namely, the cross-holding reduced free float, the portion of shares available to be traded on the market. This made both stocks less liquid, thus reducing index weighting or making them completely ineligible for key global indices, such as the MSCI Australia Index. Additionally, the reciprocal ownership created complexity in financial reporting, obscured true underlying asset values, and discouraged some institutional investors who viewed the structure as opaque or inefficient.

Source: Google

In the context of this story, it is important to appreciate the rise of passive investment and the influence it is having on share prices, not just in Australia but globally. ASX figures show that ETF investment hit A$200 billion at the end of 2024, a 20-fold increase in the last decade. Index funds and ETFs now represent a significant portion of capital markets globally, with managers like BlackRock, Vanguard and State Street allocating capital based on transparent, rules-based inclusion criteria.

These passive funds don’t lobby, agitate or vote out boards. They simply buy what’s in the index and ignore what isn’t. In this world, being excluded from a major benchmark like the MSCI Australia Index is more than a reputational blow, it’s a brake on share price growth and capital inflows.

Despite strong fundamentals, SOL and BKW were left out of the MSCI Australia Index and saw lower relative demand from index-tracking funds, simply because of their limited free float caused by their cross-holding. Over time, it became clear that unless they restructured, the companies would remain undervalued compared to their peers.

Under the announced merger, a new ASX-listed entity (TopCo) will be formed. Soul Patts shareholders will receive 1 TopCo share for every SOL share held, while Brickworks shareholders will receive 0.82 TopCo shares for each BKW share. TopCo will retain the name “Washington H. Soul Pattinson and Company Limited” and trade under the ASX ticker SOL.

Crucially, the cross-shareholding will be fully unwound, with TopCo becoming the clean, transparent parent of both businesses, therefore increasing free float, from ~60% pre-merger to over 90% post-merger.

This change opens the door to several powerful re-ratings:

• Higher weighting in the ASX 100 and ASX 50 indices, thanks to increased liquidity and simplified ownership.
  
  
• Inclusion in the MSCI Australia Index, long denied due to structural constraints, now becomes highly likely at the next quarterly rebalance.
  
  
• Greater appeal to passive funds, both domestic and international, leading to automatic buying from ETFs, pension funds, and low-cost index managers.
  
  

The estimated index weighting of TopCo in the ASX 100 is expected to increase to ~1.0–1.1%, while in the ASX 50, the new entity could command ~0.75%, placing it firmly in the mid-tier of the index. Additionally, the MSCI inclusion could also generate hundreds of millions in passive inflows, acting as a tailwind to valuation.

The market response has been swift and emphatic. On the day of the announcement, SOL shares surged 16.4% to $43, while BKW jumped 27.6% to $35.10, reflecting investor recognition of the structural unlock and rerating potential. The gains signal that the market is rewarding clarity, float, and simplicity — not just earnings growth.

Who’d have thought that in the end it wasn’t active investors and courts that would change 56 years of history but the silent assassin that is passive investing. The Soul Patts–Brickworks merger isn’t just a simplification of structure; it’s a case study in how market architecture shapes corporate behaviour. The invisible hand of index eligibility, liquidity filters, and free-float requirements quietly but inexorably forced change.

And in doing so, it unlocked value, transparency, and opportunity for a new generation of investors — passive and active alike.

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