By Rhiannon Hoyle, Staff Writer, WSJ: Shareholders in the world’s biggest mining company, BHP Billiton, could set a tone for the industry this week when they vote on whether to support a plan to make the company smaller.
“This is going to set the benchmark for future spinoffs,” said Jim Osman, chief executive of The Edge Consulting Group, which specializes in research on corporate breakups.
It is setting up a company, South32, to house unwanted operations including coal mines and alumina refineries. In the process, it would halve the number of assets it runs and the number of continents on which it operates, leaving BHP focused on a handful of commodities including iron ore, copper and oil.
The move, expected to gain support at shareholder meetings held simultaneously in London and Perth, Australia, on Wednesday, would partly reverse BHP’s takeover of Billiton PLC of Britain in 2001. The surge in metals prices that followed that deal has faltered in recent years. The measure could be one of the biggest breakups in mining history—and could prompt other large mining companies to follow suit, analysts say.
Mr. Osman said the backdrop was well-suited to such listings. “BHP and other companies are talking about a ‘perfect environment’ because investors these days are looking much closer at the fundamentals, and good companies are rewarded with a higher share price,” he said.
Part of BHP’s reasoning is that the value of some of its assets remains hidden within the $130 billion company it has become. In a smaller company, run by a dedicated management team, those assets are expected to have room to shine. “For South32, the separation gives it the freedom to pursue its own tailored strategy…without having to compete with BHP Billiton’s larger assets and operations,” BHP Chief Executive Andrew Mackenzie said in March.