The UK’s blue-chip FTSE 100 index is set to lose its biggest company after miner BHP said it would unify its dual-corporate structure and shift its primary stock market listing to Australia.
The move was announced as BHP unveiled a deal to exit oil and gas by selling its petroleum business with Australia’s Woodside Petroleum in exchange for shares that will be distributed to investors. The company also declared a record final dividend of $10.1bn as profits soared on surging commodity prices and strong demand from China.
The unification of the company’s complex dual-listed structure — which comprises BHP Ltd listed in Sydney and BHP Plc listed in London — coupled with the exit from petroleum are the most radical changes since the deal that created the world’s biggest miner two decades ago.
They come as chief executive Mike Henry tries to shift BHP’s focus toward metals such as copper and nickel, as well as green commodities. The company also said on Tuesday its board had approved plans to spend $5.7bn to complete the development of the Jansen potash project.
However, the plan to shift its primary listing to Australia’s stock exchange could face opposition from UK shareholders. In 2018, Unilever was forced to drop the planned unification of its dual-listed structure into a single Rotterdam-based company following pressure from investors. It later consolidated in London.
Henry told the Financial Times that now was the right time to switch to a simpler corporate structure. He also said the costs of collapsing the dual structure had fallen to $500m from $1.7bn in 2017 when Elliott Advisors, the activist investor, called on BHP to unify its share listings. This is mainly due to the resolution of a tax dispute with the Australian government.
“One of the reasons I am in the UK is that I don’t want people to misinterpret unification as being any indication that we are withdrawing from the UK. We will still have a [secondary listing] here,” Henry told the FT.
“I am hopeful shareholders will see the wisdom for the company in terms of simplifying the corporate structure . . . and what that means for long-term growth.”
Shares in BHP rose 8.3 per cent to £24.71 in early trading in London as hedge funds scooped up the UK-listed shares, which trade at a discount to the Sydney-listed shares because of the favourable tax treatment of dividends in Australia.
“The big news is unification, and the hoped narrowing of the 16 per cent discount that the LSE line trades at versus the ASX line, which we think is driving outperformance,” said analysts at Berenberg, referring to the share price rise.
BHP is the biggest company on the London Stock Exchange with an equity market value of more than £137bn, just ahead of AstraZeneca. However, as only 42 per cent of BHP’s total share count is listed in the UK, the Anglo-Australian miner does not have the biggest weighting in the FTSE 100.
Under existing rules that will mean BHP will be removed from the blue-chip index and because of their investment mandates, many UK shareholders will be forced to sell. “For UK investors this sucks,” said one investor. “This is a fantastic company.”
BHP’s dual structure dates from the 2001 merger of BHP and Billiton. However, most of that deal was picked apart by BHP’s decision in 2015 to spin off a group of unwanted assets into a new company called South32. Today, BHP makes most of its money in Australia where it is headquartered while the assets held under its Plc umbrella generate less than 5 per cent of group profits.
“This completes the four key proposals we suggested 4 years ago,” said Ben Cleary of Tribeca Investment Partners, a Sydney-based fund management group that alongside Elliott publicly pressed for changes at BHP. “I think management has done an amazing job and the stock will trade at $100 in Australia over coming years.” BHP Ltd shares closed at $A51.33 on Tuesday.
The dual structure is expected to be unwound through a scheme or arrangement that would need support from 75 per cent of shareholders present at a special meeting.
Analysts said they expected BHP to face less opposition than Unilever because unification would help narrow the discount between BHP’s shares in London and Australia.
BHP said underlying attributable profit, a measure tracked by analysts, was just over $17bn in the year to June, up from $9bn in the preceding 12-month period, on revenues of almost $61bn.
Strong cash generation enabled the company to declare a final dividend of $2 per share, or $10.1bn, taking its total payout for the year to $15bn. Steelmaking commodity iron ore and copper were the main driver of profits. Net debt fell 66 per cent to $4.1bn.
BHP is the final big miner to report results in what has been a bumper earnings season as the industry has emerged as one of the biggest beneficiaries of China’s rapid economic recovery from the coronavirus pandemic. Stimulus measures across big economies have also helped fuel strong demand for commodities, sending prices sharply higher.
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2021-08-17 11:23:31Z
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