19/04/2017 - 11:59

Political edge to BHP break-up play

19/04/2017 - 11:59


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OPINION: Corporate events such as takeovers and break-up proposals do not always have a political edge to them, but when they involve BHP Billiton, once Australia’s biggest company, politics are not far away (and neither is Western Australia).

Political edge to BHP break-up play
US-based investors in BHP Billiton may favour a structural change to the business.

OPINION: Corporate events such as takeovers and break-up proposals do not always have a political edge to them, but when they involve BHP Billiton, once Australia’s biggest company, politics are not far away (and neither is Western Australia).

That was certainly the case in the 1980s, when BHP (before it merged with Billiton) was the target of a series of attacks by Perth-based entrepreneur, the late Robert Holmes a Court, via one of the company’s he controlled, Bell Resources.

Non-political at the start, Holmes a Court’s raid on BHP became highly political at the end when the WA government was sucked into the process after its insurance arm joined with Alan Bond to make a joint takeover bid for Bell Group, which owned 40 per cent of Bell Resources.

What Holmes a Court started has dogged every WA government since 1987, first by luring it into a corporate affair and then by being forced to fight residual legal actions.

BHP Billiton has a new version of Holmes a Court knocking on its door in the form of US corporate raider Paul Singer, who is determined to shake value out of a business that never quite achieves what some investors think it is capable of achieving.

No-one knows whether Mr Singer, chief executive of US-based Elliott Advisors, will be able to influence the board of BHP Billiton with his proposal to restructure the business by spinning-off its US oil assets and dumping a dual-listed structure that involves stock-exchange listings in London and Australia.

However, there is every chance that what he has started will develop a political edge, given the importance of BHP Billiton to the Australian economy, especially the WA economy – and because of Mr Singer’s preparedness to fight at a political level.

The Australian government has already hinted it is watching closely, warning that whatever happens to BHP Billiton will be subject to a national interest test under foreign takeover laws.

The WA government might also be forced to consider its position in regard to the future of BHP Billiton because of its importance in three major WA industries – iron ore mining, oil and gas production, and nickel mining and processing.

The last thing WA’s new premier, Mark McGowan, is likely to do his follow in the footsteps of an early Labor premier, Brian Burke, and become intimately involved in a corporate struggle involving BHP Billiton.

There are, however, reasons for the WA government to form a view on what is happening and perhaps make sure that all sides playing at a corporate level do not lose sight of the fact that what happens to BHP Billiton does affect the WA economy.

Mr Singer is undoubtedly ready for political involvement, and perhaps even intervention to influence the plan he has outlined for the restructuring of BHP Billiton.

After all, he is the man who famously forced the government of Argentina into a 10-year international legal brawl over the payment of interest on its debts, eventually extracting better terms than the 30 cents in the dollar accepted by banks that held Argentinean debt.

What Mr Singer has proposed for BHP Billiton is a deal that will appeal to some investors, especially those in the US who would like to see its oil assets spun-off into a new business, while also accepting that being a single company with one primary stock exchange listing makes better sense than two listings.

The defence against Mr Singer started last week with a formal rebuttal, which included a list of reasons supporting the existing structure.

Unfortunately for BHP Billiton, its ‘no changes’ position fails to acknowledge the value it created by an earlier spin-off in the form of the remarkably successful new Perth-based mining business – South32.

An independent company valued at more than $15 billion has emerged from what was formerly a collection of assets lost inside a corporate giant, and which after just two years of existence already ranks as the 25th biggest company on the ASX.

Mr Singer, so far, has only suggested a US oil spin-off, but as the debate develops around the future of BHP Billiton it would not be surprising to hear other proposals for the creation of more spin-offs, which can grow like South32, free from the grip of a centralised head office that controls the allocation of capital.

Just such a spin-off is waiting to happen in WA in the form of BHP Billiton Iron ore, an immensely profitable business but one starting to feel a capital squeeze as the parent company shifts its focus to copper investment opportunities in Chile, and oil in the US.

WA iron ore will continue to perform well as part of BHP Billiton, but it’s interesting to think about how much better it could perform if cut free in the same way the assets in South32 have performed since they were let loose.

What Mr Singer has started has a long way to run, and will force investors and politicians to think about what’s in the best interests of the people they represent.

In the case of WA, it could well be that a break-up of BHP Billiton into its various parts is in the interests of the state, because an independent BHP Billiton Iron Ore would have a Perth head office and would make decisions in its best interests without simply sending its profits to other parts of the corporate empire.


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