The BHP-Billiton deal is a bad one for BHP shareholders and they should vote against it at the shareholders meeting on May 18.
The deal cooked up for BHP shareholders is being regarded increasingly suspiciously by Australian institutional investors, and rightly so. Crikey is urging BHP shareholders to vote against it for a number of reasons.
With the receipt of the merger proposal documents for the merger with Billiton, the institutions are now in a quandary. Surprise surprise, there is plenty of disclosure about how the new management will be looked after and little about Billiton’s asset values in high sovereign risk countries such as Mozambique and Colombia.
What they should really be asking is what would happen if they voted against the Plan A merger proposal and went instead for Plan B.
Plan B might look like this.
1.Make the deal with Billiton negotiable by voting against it. Billiton and the Gilbertson crew are dead in the water without this merger. They have a shortage of a critical item, money, which BHP has in abundance. Maybe BHP could participate in a much needed rights issue or share placement in Billiton if this deal falls over.
2.Billiton and Gilbertson need this deal more than BHP needs them. It might also be useful to BHP and its shareholders if they knew more about what they were buying and it wasn’t quite the shot in the dark it seems. The parallel is Li’s Pacific Cyberworks and Testra. If this deal is opposed by shareholders, Australian institutions really need to be asking themselves what Billiton’s shares would trade at. Answer, probably up to 30-40% less than they do today which explains why Anglo American dumped their 7 per cent Billiton stake the other night. Winners are grinners, losers can make they’re own arrangements, and BHP could likely get Billiton for much less, with Gilbertson and Co running some combined Billiton and BHP assets, but not the whole show. Head Office location in London or Melbourne has nothing to do with anything. The alternatives for Billiton are not good. For example, there is likely no place in Rio Tinto for Gilbertson and most if not all of Billiton’s assets. Gilberton and Co can either go with a renegotiated deal, Li-style, or be toasted in the markets they are so fond of. And if Billiton and Gilbertson and Co go elsewhere, so what. There are plenty of other things that BHP could be looking at which might make much more sense that this deal. The BHP Board can’t even seem to explain the details of it properly.
3.Meanwhile, BHP CEO Anderson works out his five year contract and the BHP Board stops fooling around and gets a long term chief executive who knows what he is doing and can cut the mustard in international business. And BHP and its Board members should quit blaming the Australian tax regime and anything else that they can think of to pressure this deal through. There is more than one way to skin a cat.
4.Force a BHP Board spill as part of the merger rejection and get some talent aboard who know the businesses BHP is in and wants to be in. This is a defining time for BHP and judging from this deal, short-timer Anderson is clearly not up to the job. Its about time someone said so. Afterall, he’s an oil and gas man who has not worked with minerals before he got to BHP. Similarly, he had no experience in Steel either. No surprise that he hands over the Minerals assets to Gilbertson, spins off Steel and now wants to fold the Petroleum assets into Woodside. In you come, break it up, get somone else to finish the job and off you go with $40 million in your back pocket. Not bad Paul, not bad at all.
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