No more double trouble as BHP ditches dual-listing structure
BHP is set to finally abandon the final legacies of its $US28bn merger with Billiton in 2001.
BHP is set to finally abandon the final legacies of its $US28bn merger with Billiton in 2001, ditching the dual-listed structure that turned “The Big Australian” into the largest resources company in the world.
BHP fought a pitched battle with activist fund manager Elliott Management to keep the structure in 2017, arguing it was too costly to unwind.
The key difference between Tuesday’s decision and the Elliott Management push is that BHP will retain its primary listing in Australia, not Britain as Elliott Management wanted – and BHP now tips the unifications costs at $US400m to $US500m, far below the $US3bn it said it would cost in 2017.
With plans afoot to sell its petroleum division to Woodside afoot, chief executive Mike Henry says now is the right time to abandon the pretence that BHP can be both Australian and English.
Mr Henry announced the move on Tuesday, saying BHP’s Australian arm would acquire all of the shares in its UK-listed sister company, effectively transferring its British shareholder base to the ASX-listed arm.
The move will leave the mining giant with a primary listing on the ASX, with secondary listings on the London, Johannesburg and US exchanges.
Mr Henry told reporters on Tuesday that Australian retail shareholders would see no change from the move, except that it would simplify the company’s structure and make fresh acquisitions – or asset sales – easier.
“The board remains the same. the management team remains the same. the underlying business remains the same – and you can see how strongly the underlying business is performing – and our ability to generate fully franked dividends remains the same,” he said.
“But part of the strategic agility that we speak about is that it will make mergers, demergers and acquisitions easier to do and make us more efficient going forward.”
The dual-listed structure is a legacy of BHP’s 2001 merger with Billiton. By retaining two separate corporate entities the pair were able to merge without the tax implications of a formal legal acquisition.
By stitching BHP and Billiton’s separate Australian and British corporate entities together, and assigning a valuation to each company’s assets (60:40 at the time), both avoided tax payments and stamp duties that might have fallen due under a more traditional takeover.
It also gave BHP two primary listings on major stock exchanges, and separate sets of shareholders in markets with deep liquidity and access to a far larger investment base that bolstered BHP’s status as the world’s biggest resources company.
But as Billiton’s assets have slowly been winnowed away – mostly notably with the spin-out of South32 in 2016 – it has been argued that BHP’s Australian-generated franking credits (an instrument that allows BHP to pass on tax paid at the company level to shareholders through dividends, allowing them to reduce their own tax burden) are wasted in the dual-listed structure.
This year 80 per cent of BHP’s underlying earnings came from its Pilbara iron ore assets, generating billions in franking credits. Under the dual-listed structure, BHP is forced into corporate contortions to transfer enough of those profits to its London corporate headquarters to pay dividends to shareholders in the UK-listed entity.
