Perpetual fails to break up

The Federal Court of Australia has ruled that the cross shareholding between Brickworks and Washington H. Soul Pattinson would not be considered unfair or oppressive to shareholders by reasonable directors.

Currently, Soul Pattinson owns 44.14 percent of Brickworks, which in turn owns 42.72 percent of Soul Pattinson.

Perpetual, which has a 6.3% stake in Perpetual, had attempted and failed to prove that “there is an agreement, arrangement or understanding between members of the ‘Millner family’ and/or various members of the boards of each company to maintain the cross shareholding in order to entrench control of the companies by the incumbent boards and thus the Millner family,” according to Justice Jagot’s reasons for judgment.

The Millner family has shareholdings in both Brickworks and Soul Pattinson, and Robert Millner FAICD is chairman of both boards.

Pereptual had argued at trial that Brickworks’ directors should have pursued the fund manager’s suggestion of a nil-premium merger between the two companies, according to a 10 July report in the Australian Financial Review.

In rejecting Perpetual’s claim, Justice Jagot said, “[o]n any reasonable view of the evidence the directors of each company have diligently considered the structure of the companies with their obligations to act in the best interests of the company firmly in mind.”

“The cross shareholding may reasonably be seen as having provided each company with material benefits as a result of diversification which has reduced earnings volatility,” according to the judgment.

Justice Jagot, however, also noted in her reasons that the cross shareholding “facilitates retention of board membership, and is a circumstance which, as the present case demonstrates, is capable of giving rise to actual and perceived conflicts of interest which require continued vigilance and prudent management.”

Only the first five paragraphs of the reasons for judgment have so far been made publicly available by Justice Jagot to allow the parties time to notify the court if there is any confidential material disclosed in the remainder. The full reasons for judgment will be made public later today.

The Perpetual-Brickworks/Soul Pattinson litigation appears to underline existing principles relating to directorship and governance, particularly in the context of cross shareholding arrangements, but the wider implications will not be known until the full judgment is released.

Justice Jagot’s orders and the immediately public part of the judgment are available here.

UPDATE: The full judgment is now available here.