BHP Group PLC (LSE:BHP)’s unexpected announcement that it plans to unify its dual-listed company (DLC) structure and shift its primary listing to Australia has had a mixed response, while the mining giant’s exit from petroleum increases the possibility of acquisitions elsewhere.
“We view the exit from Petroleum as a good strategic step, although we see limited valuation uplift from the proposed structure and it leaves BHP short on growth options,” said Deutsche Bank (NYSE:DB) analyst Liam Fitzpatrick. “Petroleum houses a large share of BHP's near-medium term growth projects and exit from this business increases the likelihood of copper and nickel acquisitions, in our view.”
The world's largest diversified natural resources company yesterday announced a merger of its oil and gas assets with Woodside Petroleum Ltd and its plans to unify its dual-listed structure, resulting in a primary listing in Australia and a standard listing in London.
READ: BHP unveils record final dividend and plans to end its London dual-listing
BHP will drop out of the FTSE 100, forcing index tracker funds to sell their shares, if the plan is approved by shareholders. The proposal needs to be approved by a 75% majority of PLC and Ltd shareholders in separate votes and some shareholders have already expressed reservations.
Consumer goods company Unilever PLC (LSE:ULVR) (ULVR) was forced to ditch its plans back in 2018 to unify its dual-listed structure into a single Dutch-based company because of pressure from investors, although analysts at Barclays don’t think the risks are so high for BHP.
“We see UK vote risk as lower than in the ULVR situation, simply because the premium offered is so much bigger (about 4x), and while PLC will lose FTSE indexation there are several highly liquid alternative mining exposures in the UK market (Rio, Anglo, Glencore), which was not the case with Unilever,” said the analysts at Barclays, noting that there was still some risk.
“There are risks around the Ltd vote and potentially material index flowback. However, an off-market buyback in Australia in February would address this: we forecast a $9bn buyback in FY22 to meet an assumed $7.5bn net debt target.”
Under the DLC restructuring, PLC shares in London will be exchanged for Ltd shares in Australia on a one-for-one basis.
“Given PLC shares pre-announcement traded at a 16% discount to Ltd, this has had a materially positive share price benefit to the PLC,” said Barclays. “We expect the spread to move to about a 6% discount with further closure likely as we move towards votes by PLC and Ltd holders in Q1-22.”
Deutsche Bank’s Fitzpatrick also said the plans should support the London-listed shares of BHP and those of its rivals.
“The DLC collapse should be a positive driver for the PLC share price and could also be positive for major peers given BHP's current valuation premium and likely loss of indexation in the UK/Europe."
However, there was concern from some shareholders over the loss of a company that paid such hefty dividends - BHP returned more than US$15bn to shareholders in the year to end June 2021 – and worries that London was losing its attractiveness for companies looking to list.