BHP Billiton shareholders to vote on historic demerger

Today is the day BHP Billiton shareholders will vote on whether to approve a spin-off of the company’s non-core assets which will create a new miner called South32.

The vote will be held at concurrent meetings in Perth and London later today and is expected to gain shareholder support.

South32 will be made up of BHP’s Illawarra and South African coal mines as well as a number of aluminium, manganese, nickel, silver, lead and zinc operations.

This will leave BHP to focus on what it calls its five pillars of iron ore, copper, coal, potash, and oil.

It will cost BHP Billiton $US738 million to spin-off its non-core assets into new company South32, but it assures that shareholders will be better off as a result of the deal.

BHP said the $US738 million would be made up of one-off costs such as stamp duty and cash tax, separation costs, and execution costs.

However the miner said the value of the cost savings from portfolio simplification would more than pay for the demerger costs.

In March BHP chairman Jac Nasser said South32 ‘s portfolio of high quality assets will benefit from the focus of a dedicated board and management team.

“South32 will begin with a strong balance sheet, will be able to adopt an independent business strategy and will have the opportunity to pursue growth and investment opportunities that may not otherwise be pursued if its assets remain within BHP Billiton.”

For BHP the plan will mean the simplification of the company’s core portfolio to 19 assets across eight countries.

“The demerger will create a more focused portfolio of large-scale operated assets with a smaller geographical spread and a higher proportion of common characteristics,” BHP CEO Andrew Mackenzie said.

“With a simplified portfolio we intend to streamline our organisational model, further standardise our common systems and better leverage our technical expertise across our operations”.

Eligible shareholders will receive one South32 share for every BHP share, with BHP reiterating its commitment to not rebase its dividend following the demerger.

Meanwhile, South32 is targeting a return of at least 40 per cent of underlying earnings to shareholders in the form of dividends.

Deutsche Bank says when South32 lists on the ASX it will be valued at $US11.2 billion, making it the third-largest miner in the country.

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