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BHP ramps up campaign against revamp: lots of costs, lots of complexity, not much gain


BHP Billiton has ramped up its defence to a restructure push, arguing the move could cost as much as $US1.3 billion ($A1.74 billion), remove the advantage of franking credits for Australian shareholders and seriously disadvantage its large investor base in South Africa.

Earlier this week, Elliott Advisors and Elliott Associates, funds associated with US hedge fund manager Paul Singer, went public with a detailed proposal to collapse the dual listed structure of BHP into a single entity with its primarily listing in London, with the shares also listed on the ASX.

Andrew Mackenzie, chief executive officer of BHP Billiton has rejected a proposal to collapse its dual listing in London ... Andrew Mackenzie, chief executive officer of BHP Billiton has rejected a proposal to collapse its dual listing in London and Australia Photo: Patrick Hamilton

It also wants the miner to be headquartered in London, which would require approval of the Foreign Investment Review Board.

The hedge fund investor also wants BHP to spin-off its US petroleum assets into a separate entity which would be listed on the New York Stock Exchange.

BHP Billiton's Peter Beaven has slapped down a proposed restructure. BHP Billiton’s Peter Beaven has slapped down a proposed restructure. Photo: Wayne Taylor

The merger of BHP with Billiton in 2001 saw the miner adopt a dual listed structure, with differing listed entities in both the London and Australian sharemarkets.

BHP estimates that as much as 17 per cent of the capital of the UK listed entity could be South African investors, making up close to half of the shares on issue of its UK arm.

BHP chief executive Andrew Mackenzie told analysts on Wednesday it would cost a one-off $US1.3 billion ($1.74 billion) to collapse the structure into a single entity, before taking into account transaction costs.

“Also South African holders … would be exposed to capital gains tax,” he warned.

BHP estimated a further $US1.7 billion in costs on top of that once adjusted for the potential loss of access to tax losses, capital gains tax and stamp duty. The annual cost savings from collapsing the structure would be $US2.4 million, it estimated.

“Lots of costs, lots of complexity, and not much to gain,” the chief financial officer Peter Beaven said.

Long discussions

BHP disclosed it had been discussing the proposal with Elliott Advisors for the past eight months. The hedge funds claims to speak for 4.1 per cent of BHP’s UK-listed shares, although Mr Mackenzie said it has not been able to verify the extent of the holding.

“I was genuinely excited to engage with Elliott,” Mr Mackenzie said. “I had hoped … Elliott may have found a breakthrough that we had missed,” since BHP has reviewed the matter previously.

“The costs would seriously outweigh the advantages,” he said, confirming BHP had evaluated “these suggestions and variations of them many times before”.

The last detailed review of the dual listed structure was undertaken when the group was moving to spin out South 32 to shareholders, two years ago, Mr Mackenzie said.

A driver for the proposal is for holders of the UK listed shares to access the premium accorded BHP shares which are traded on the ASX, although analysts have warned of the risk that collapsing the existing structure could see the ASX-traded shares lose that premium – a concern that was also voiced by Mr Mackenzie.

“Where does the value go?” Mr Mackenzie asked.

“Who has to give way on the value perspective?”

While there could be an uplift for the value of BHP shares traded in the UK, the worth of its ASX-traded shares could decline by way of comparison.

BHP was also wary that if the proposal was to be implemented, for BHP to have a primary listing in the UK would reduce trading in the miner’s shares in Australia, with trading volumes flowing offshore, which could also be detrimental for local investors.

BHP is strongly anchored in the Indo-Pacific region which is where the bulk of its assets and sales take place, Mr Mackenzie said.


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