A very interesting fact that no-one mentions anymore was that the MLT deal pegged SOL at $31.00. It was roughly the price just before the announcement in June 2021. It went on its mad run (to $38) on little news and certainly not enough evidence that there was an oil, coal and everything crisis coming down the line or that SOL was worth more than the $31. You have to decide why they offered a premium to NTA before tax.
During those heady days I was probably drinking too much of the fruit juice so started thinking it was worth at least $32 to $35. I now think that wasn't logical unless you consider that a premium to NTA is appropriate. In exploring that I took a long look at ARG and AFI. As at 28 February this year they are both trading at a premium of 10% and 13% to pre tax NTA. They both yield (including franking ) around 4.3%. At the time of the announced merger in June 2021 ARG traded at or about Pretax NTA. AFI traded at a premium of around 3 to 4%. MLT actually traded at a discount to Pretax NTA. The SOL offer was to bump this to a 10% premium to pretax NTA. SOL traded around $31 to $32 at that point. At first glance I wasn't happy about the deal - I didn't like the fact that Rob Milner was involved with MLT and with SOL. Ethically nothing wrong but a bit close to home for my liking.
However over time I have gained some insights that have made me very happy with this acquisition - They are:
1. If you took the pegged SOL price of $31.00 and took the premium paid as 10% then the ex premium price on SOL would have been $28.18. I still think it was an expensive deal but not excessively so. I doubt whether SOL could have raised $3.7 billion without it costing around 5% - even if there was an appetite for that large a CR. 2. I think investing is going through a metamorphosis - the old ideas of LIC's are dead - stock pickers in a low yield environment find it very hard to outperform after costs the index. In fact just look at the number of LIC's no longer measuring themselves to the index. I suspect that more SOL's will have to appear. IFT is touted as one - A combination of concentrated investments and the ability to drive investment without hugging the index. SOL gives you this. It has investments in Private equity, emerging companies and Large Caps. Plus it's operating businesses that it heavily influences. 3. It is a better model than IFT as the fees - Morrisons take for outperformance are huge and limit the upside. They are also very prone to work on investments as projects and then churn them for the big payday. They take a management fee plus a performance fee. SOL just passes on the cost of management. 4. LIC's in the main wont invest in a high risk high reward venture as they wont be able to generate annual dividend flow whilst it is building so tend to invest after phase one. I would suggest a Round Oak would not have got into a traditional LIC portfolio in the early years as cashflow was one directional all outwards. In my portfolio and those that I see as successful as an accountant - I see a balance - I don't see Afterpay but I do see BTI, Altium and shares like that. SOL has those as well and I don't have to navigate those decisions - they get offers - I wont get. 5. I live off income - be it dividends or employment. Cashflow is my need and my friend. Security of income is important. We don't , as an employee, get to see the risk profile of our employment income and I have now lived through 3 financial crises (1987 , 2008, 2020) on each occasion I could not secure my cashflow from either investments or employment. I could buy an annuity and condemn myself to eternal poverty as the costs are far to high for the rewards. I think SOL and indirectly BKW provide me with a better security of income.
So I see this model as one for the future: You have to decide if it deserves a premium or not.
I was a MLT shareholder but only purchased after the merger announcement. I held for the SOL shares and strangely am underwater because my effective price is around $29.00 a share.
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