Perpetual ruling in Brickworks case lifts bar for activist investors

Activist investors are emerging on radars of Australian boards, thanks to Elliott Management’s decision to take on the biggest Australian of them all, BHP.

But activists spirit could be dampened after Perpetual was shellacked by the Federal Court in its bid to claim oppression from the complicated corporate structures at Washington H. Soul Pattinson and Brickworks.

A 190-page judgment from Federal Court judge Jayne Jagot was released from embargo yesterday and had corporate lawyers across the country combing the finer details.

Costs were awarded against Perpetual and lawyers estimate it could reach about $10 million, given the number of barristers, lawyers and documents that would have been produced over the past decade.

Perpetual had claimed minority shareholders in WSP and Brickworks had been oppressed because of the companies’ cross ownership structures and the Millner family control of the entities. Under the existing structure, WSP owns a 44 per cent stake of Brickworks, which in turn holds a 42 per cent stake of its parent company.

Perpetual and Hunter Green had proposed a nil-premium merger between Brickworks and WSP to reduce the ownership tensions in the two entities. The proponents of the plan campaigned that the underlying assets wouldn’t change and would be more valuable if merged.

The court was told during the hearing that the merger could ­release up to $425m of value in the companies. But Justice Jagot disagreed and the judgment could set an important precedent in future oppression claims and investor activism.

Yancoal was taken to the Takeovers Panel in 2014 when one of its few independent shareholders, Senrigan Capital, claimed it was being oppressed. The same investor has started to raise concerns over the Hunter Valley deal.

The impact on the activist front will be intriguing, given the ­oppression line is the most common argument put forward by the unhappy shareholder to agitate for change.

Elliott’s entrance to Australia was expected to prompt some other activist funds to sharpen their focus on the corporates in the domestic market.

But Elliott so far has failed to land a blow on BHP and has been brushed off by incoming chairman Ken MacKenzie.

The Federal Court’s decision is likely to make it tougher for activists in Australia to turn towards one of their favoured arguments in the future.