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The proposed merger between BHP and Billiton, announced mid March, will create an international mining and resources group second only in size to Alcoa, the giant US aluminium company. Assuming regulatory approval is forthcoming and no counter-bids emerge, the new group will have a market capitalisation of some $30bn, annual sales of $l9bn and a war chest of some $8bn for capital projects over the next four years.

The merger deal will create a dual-listed company with shares quoted on both the UK and the Australian stock markets, secondary listing on the Johannesburg Stock Exchange and a US Depository Receipt listing on the New York Stock Exchange.

The new company claims an enterprise value of $35bn. The synergy between the two companies has long been recognised, and talks between the two companies periodically on-going since Billiton moved to a London listing in mid-1997. In 1999, Billiton acquired BHP's manganese assets, making Billion the world's largest producer of chrome and manganese ores.

Australian group BHP is one of the world's largest producers and exporters of coal, iron ore and copper. Billiton brings to the group three new commodities; aluminium, nickel and titanium mineral sands. There is also a geographic fir with BHP's strong presence in Australia and the Americas complementing Billiton's African investments.

Impressive rescue act

In the past two and a half years he has been at the helm, BHP group's chief executive, Paul Anderson, has executed an impressive rescue from the company's previous strategic blunders, overseeing a remarkable turn-around in the company's fortunes. From reporting Australia's worst ever corporate loss of $1.14bn in 1998-9, the company posted record annual operating profits of $800m last year - assisted by higher commodity prices but achieved mainly through radical restructuring, the sale of some $3.5bn of assets, and the partial spin-off of its Australian flat steel operations.

The merger deal will see the group locate its head office in Melbourne Australia. Significantly, Mick Davis, Billiton's finance director will assume the post of chief development officer in the new group, and while Paul Anderson will remain in overall charge, he will step down at the end of 2002 to be succeeded by Brian Gilbertson, Billiton's chairman and chief executive. So, by the end of next year, the new company will be under mainly Billiton-heritage management.

Billiton was formed by Glencor, its South African former parent, from mining assets bought from Royal Dutch Shell in 1994. The company has been a leading player in the consolidation of the international mining and resource sectors.

Its decision to combine with BHP is widely viewed as a defensive move.

Having spent billions on acquisitions in the last year - most notably the takeover of Rio Algom and additional investment lifting its stake to 86% in the Worsley alumina refinery in Western Australia (at a combined cost of $3.5bn) - Billiton's gearing, at close to 70%, was considered excessive, leading to speculation that it was in play as a potential take-over target.

No hostile bid

When AngloAmerican took a 7.1% stake in Billiton in a secret deal last December - by selling its shares in the South African financial group FirstRand to the industrial group Remgro - it had committed to not launching a hostile bid, but that agreement is negated by the involvement of a third party (i.e. BHP) and so, technically, AngloAmerican is free to make a counter bid.

However, analysts believe that is unlikely whilst AngloAmerican's complex takeover of DeBeers is in process, however much its pride is injured by being overtaken by BHP/Billiton as the world's second largest mining group.

Other options that AngloAmerican may consider are to increase its stake-holding in Billiton to block the merger, or counter-bid with a partner.

Mooted also to be potential counter-bidders are Alcan and Rio Tinto, but as we go to press no developments have been forthcoming. Watch this space.
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Author:Williams, Stephen
Publication:African Business
Article Type:Brief Article
Geographic Code:8AUST
Date:May 1, 2001
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