BHP sell-off could undo Billiton deal – by Danny Fortson (The Australian – July 14, 2014)

The Sunday Times – A FEW days after Paul Anderson unveiled the largest merger in the history of the mining industry, the American boss of BHP went on a Sunday talk show to put politicians’ minds at rest. They were concerned that BHP, the 116-year-old national champion known as “the Big Australian”, was about to be lost to London.

Mr Anderson and Brian Gilbertson, head of smaller rival Billiton, had just announced a $US28 billion tie-up that would create a new natural resources Goliath.

Billiton was already listed in London. BHP, meanwhile, ran its giant oil operation from London. A relocation of the group headquarters from Melbourne seemed a distinct possibility. After all, the combined group would stretch across five continents and produce everything from diamonds and oil to nickel and iron. Why not run it from ­Europe’s financial capital?

The fears, Mr Anderson assured, were misplaced.

He said the merger was “a win-win”. There would be housekeeping to be done but a headquarters move would not be part of it. “I’m sure there will be two or three things in the portfolio that we will want to sell off … once we put the companies together,” he said.

A few things indeed. Thirteen years on, Andrew Mackenzie, the saxophone-playing former BP executive who took over at the helm of BHP a year ago, wants to undo the deal. The Scot is considering a radical plan to spin off most of Billiton into a separate entity.

Goldman Sachs has been working on the initiative, called Project River, for more than a year. Mr Mackenzie expects to decide by the end of the year whether to create a new, listed company stuffed with the group’s unwanted assets or to sell them off piecemeal. These make up most of the former Billiton, including the aluminium, manganese and nickel operations.

Industry sources claim the move could lead ultimately to BHP pulling out of London, delisting its shares and closing its office in the capital to leave it with its original Australian-listed stock and headquarters in Melbourne.

BHP has poured cold water on the latter. Finance director Graham Kerr said in February the company’s dual listing “has worked and continues to serve shareholders well”. Yet Mr Mackenzie’s demerger and investor enthusiasm for it — analysts have universally praised the move — posit a simple question. Was mining’s defining deal a bust?

First, some context. In the past decade, BHP Billiton has showered investors with $US62bn in dividends. During that time only one big company’s shares were a better investment than BHP Billiton’s, which generated a 400 per cent total shareholder return. That company? Apple.

Part of this is luck. Nobody knew that China was about to boom and send the prices of iron ore, copper and oil through the roof. The deal’s timing was serendipitous. Indeed, in the 40-page presentation the companies put together to sell the deal to investors, China didn’t get a mention.

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