Brickworks Ltd (ASX: BKW) shares are catching the eye on Monday.

In morning trade, the building products company's shares are up a massive 18% to a record high of $32.48.

This is significantly outpacing the ASX 200 index, which has dipped slightly in morning trade.

Why are Brickworks shares soaring?

Investors have been scrambling to buy the company's shares today after it announced a $14 billion merger with Washington H. Soul Pattinson & Co Ltd (ASX: SOL). You can read about that in more detail here.

As we covered earlier, the deal will see Brickworks shareholders receive 0.82 shares in the newly formed entity, TopCo, for each share held.

This arrangement initially valued Brickworks shares at $30.28, which was a 10.1% premium to their previous close.

However, with Soul Patts shares rising 10% this morning, the implied value of TopCo shares—and consequently, the value of the merger consideration for Brickworks shareholders—has increased.

This explains why Brickworks shares are now comfortably exceeding the original offer value.

What's happening?

The market's positive reaction suggests that investors are confident in the strategic rationale behind the merger.

The release notes that the deal aims to simplify the corporate structure by eliminating the long-standing cross-shareholding between the two companies, enhance scale, and provide diversified exposure across various sectors, including building materials, property, and diversified investments.

In addition, the combined entity is expected to benefit from increased liquidity, a broader shareholder base, and enhanced growth opportunities. Investors appear to be pricing in these potential synergies and the anticipated value creation from the merger.

Commenting on the deal, Soul Patts CEO, Todd Barlow, said:

Merging Soul Patts with Brickworks makes a lot of strategic and financial sense. It simplifies the structure, adds scale, and creates a more investable company. In many ways Soul Patts and Brickworks have evolved together and shared in the capital stability provided by our cross-shareholding over the past 56 years.

The cross-shareholding served an important purpose over the years by achieving diversification of earnings, promoting long-term investment decisions and creating significant long-term value for shareholders. However, we believe the combined business will be very well diversified and in an even stronger position to deliver enduring value for all shareholders.

This sentiment was echoed by Brickworks CEO, Mark Ellenor. He said:

Brickworks has undergone significant evolution over the past few decades, with the growth in value of its Property assets and its Building Products portfolio. The time is now right to combine with Soul Patts, bring our portfolios under one investment company, and become a well-resourced and more diversified group delivering long term value for our shareholders.

What's next?

The Brickworks-Soul Patts merger is subject to shareholder approvals and other customary conditions.

However, today's share price movements appear to indicate a strong endorsement of the proposed combination from investors.