The end of cross-listings globally? BHP mulled leaving London and dropping dual listing

BHP mulled leaving London and dropping dual listing

February 17, 2014 – 3:42PM

James Chessell

BHP gained its London listing in June 2001. Some believe it is now looking to change its dual-listed structure. Photo: Reuters

Has BHP Billiton been reconsidering its dual listing on the Australian and London stock exchanges? The official line from the worlds largest diversified resources is that no serious work has been done on collapsing the dual-listed company structure. A BHP spokewoman said: “We think this structure has worked and continues to serve shareholders well”.

Yet there are those who remain convinced that in the second half of 2013 a team was assembled to look simplifying parts of the vast $121 billion business, including the dual listings. The project was known as “unification”, according to multiple sources, and later focused on simplifying internal processes, financial management and legal entity structures. It had the blessing of chief executive Andrew Mackenzie, who assumed the top job in May and will hand down what is expected to be a $US6.9 billion interim profit on Tuesday.

Everyone agrees that it was eventually decided that it would be too difficult to collapse the dual-listed structure. Not only would it be a highly complicated task but there were doubts the Australian market could handle a company with a market cap almost twice the size of Commonwealth Bank of Australia. But there is no mistaking the symbolic importance of the work that was done.

BHP gained its London listing when it merged with South Africa’s Billiton back in June 2001. The structure had, in theory, several benefits. A broader group of shareholders could buy the stock, particularly when many big mining fund managers were based in London. Crucially, the structure meant it lined up with arch-rival, Rio Tinto, which had a London listing. BHP’s chairman at the time, Don Argus, had long coveted a merger with Rio and was keen to have a structure that would make it easy as possible to happen.

Argus got his chance in 2007, launching a bold $US350 million takeover bid for Rio. But after 12 months, BHP walked away from the “deal for all seasons”. With a new chairman, Jac Nasser, installed in 2010 – and the heat coming out of the mining boom – it became clear a combined BHP/Rio was off the agenda for good.

With one of the key reasons for embracing the dual listed structure no longer a possibility, another source of frustration for some BHP executives began to bubble to the surface. The London-listed BHP shares have historically traded at substantial discount to Australian stock. Big investors and hedge funds have long been facinated by the “spread” or difference between the two types of shares. The spread was as big as 20 per cent in April last year but has closed in recent months – partly due to franking credits available to Australian investors. Having one main listing would remove the potential mismatch that has existed.

For its part, BHP say there are no plans to change anything. “The BHP and Billiton merger was done using a dual-listed company structure,” the spokeswoman said.

“Our dual-listed structure has allowed all of our shareholders to share in the continued growth of China and the demand it has generated for our products. We think this structure has worked and continues to serve shareholders well”.

While the spokeswoman said BHP “continually” reviews its capital structure “like any company”, other official sources within the company say there was no project unification – informal or otherwise – and not team working specifically on collapsing the dual listing.

They argue the work unification has been used to describe part of what the company’s new vice president of Internal Capital Management, Tony Merlo, will be looking at. In an internal memo to tax employees last week, BHP said Merlo had the job of integrating finance, tax and treasury functions.

“The words ‘potential for unification’ are in the staff announcement – but it’s in the context of simplifying internal processes, financial management and legal entity structures across the Group at subsidiary level- it’s not a team working on the DLC structure,” said an official source.

The Australian Financial Review