The proposed spin-off of South32 received near-unanimous assent at BHP Billiton’s (BLT) recent annual meeting, so the group will cease trading with an entitlement to South32 shares from the end of 15 May 2015. The demerged mining entity will begin trading on the London Stock Exchange on a ‘when-issued’ basis from this coming Monday. (This describes a transaction that is made conditionally because a security has been authorised but not yet issued).
The residual operations of BHP Billiton will amount to roughly a dozen or so large-scale mining and petroleum projects, while South32 will draw its output predominantly from the parent group’s non-core aluminium, silver, zinc, nickel, and metallurgical coal operations. This is slightly ironic given that these assets were largely those brought to the table by Billiton Plc during the 2001 merger deal. Now it appears as if economies of scale have given way to rationalisation, while cost synergies have all but evaporated.
Presumably the institutional advisers that convinced management about the benefits of the original consolidation weren’t extolling the virtues of a more focused asset portfolio this time around, but you can never be sure. It’s thought that City advisers will pocket around $30m on the back of the deal, but with the vote in the affirmative there’s little point in musing on skewed incentives. The bottom line, however, is that the contribution of the former Billiton assets to group earnings has contracted by 63 per cent since the Anglo-Australian resource giant came into being.