Must-know: The long-awaited split

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BHP’s long-awaited split

BHP offered more details about the creation of the new company. It provided the details after it announced the demerger on August 15. BHP explained that the demerger was the preferred way to simplify its portfolio.

Global portfolio

Structure

The new company (or NewCo) will be an Australian incorporated company. It will be listed on the Australian Securities Exchange (or ASX). It will also have a secondary listing on the Johannesburg Stock Exchange (or JSE). It will have an American Depository Receipt (or ADR)—it represents the securities of a non-U.S. company that trades in U.S. financial markets—in the U.S. BHP Billiton limited and Plc shareholders will be entitled to pro-rata distribution of NewCo shares. This structure treats all the existing shareholders equally.

Assets in SpinCo

SpinCo’s assets will include aluminium, alumina, manganese, part of nickel, part of energy, metallurgical coal, and silver. We’ll discuss the assets and their cost profile in more detail in next part of this series.

Management

The current CFO, Mr. Graham Kerr, will be the CEO of the newly formed entity. BHP’s investor relations head, Mr. Brendan Harris, will be its CFO. The company’s longest serving director, Mr. David Crawford, will be the new company’s chairman. The NewCo listing is expected to be complete in mid-2015.

More details awaited

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In its conference call, BHP stated that other details on key issues like corporate overheads, tax, capital requirements, franking credits, and dividends will be provided in due course. Also, there are a few assets like nickel, coal, and smaller petroleum assets that are still under review. A decision needs to be made about whether or not to divest them.

Mining companies like BHP Billiton (BHP) are focused on productivity and cost-cutting measures—whether that includes spinning off or selling a part of the non-core assets. Many companies have gone that way in the past like Rio Tinto (RIO), Vale SA (VALE), and Cliffs Natural Resources (CLF). Exchange-traded funds (or ETFs) like the SPDR S&P Metals & Mining ETF (XME) also provide exposure to the metals and mining sector.

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