An overnight Bloomberg report revealed that BHP Billiton Limited (ASX: BHP) chairman Jacques Nasser wrote a letter to investors informing them that: "We have been pleased by the support for the demerger and the level of interest investors have shown in the company".
The letter appeared to result from meetings with investors that included U.K. shareholders who would have been excluded from owning the new stock under the terms of a prior announcement. However, some uncertainty prevails, as the spinoff may be a secondary London listing.
Benefits and disadvantages for shareholders?
Before contemplating potential winners and losers, let's consider what assets will be in the unnamed spinoff company. These include:
The Australian-based Cannington silver and lead mine is the world's largest operation of its kind.
The Colombian-based nickel operation called Cerro Matoso.
Aluminum and manganese assets spread across many countries.
The Illawarra metallurgical coal business.
BHP is effectively simplifying its portfolio of assets and is intending to keep five main pillars including iron ore, copper, petroleum assets, the majority of coal projects and potash.
What is the potential for shareholders of the spinoff company?
Advantages:
Bloomberg forecast the spinoff may deliver investors a two third uplift in earnings, when it was first mooted over a month ago.
With operations at the bottom of the economic cycle, other mining houses may potentially look to takeover the company.
Takeover opportunities that were previously not favoured by the BHP board may now arise for the new company.
Disadvantages:
In taking up shares in the new entity, shareholders may be exposed to more volatile commodities, when compared to iron ore and crude oil.
Potential for shareholders in BHP Billiton?
Advantages:
Management is aiming to make the company more productive while also:
Unlocking shareholder value.
Generating stronger growth in cash flow.
Aiming for a superior return on investment.
Increasing focus on its major operations.
Disadvantages:
Assuming we are near the bottom of the economic cycle, existing BHP shareholders will not be participating in a rally inspired by base metal prices.
