Mining giant BHP (BHP) is proposing to leave the FTSE 100 and move its main listing to Australia as part of plans to simplify the business. The announcement is likely to disappoint investors as BHP is one of the biggest constituents in the index and one its most significant dividend payers. If approved, the move will have wide implications for index investors and income seekers alike.
Currently BHP shares are listed in both Sydney and London as BHP Limited and BHP Plc and are trading at £21.24 and A$44 respectively. Morningstar mining analyst Matthew Hodge says the move to collapse the dual-listed structure would need the support of 75% of both UK and Australian shareholders to go ahead. It’s been on the cards for many years – the plan was last looked at in 2017 – but this time Hodge expects the deal to go through. If so, it would take effect in the first half of 2022.
Hodge thinks the move could actually benefit UK owners of BHP: “Our initial take is that the deal would be a net positive for UK shareholders as they typically trade at a material discount to the Australian listed shares,” he says. There’s no change to the fair value of A$41 for the Australian-listed shares after the announcement, meaning that BHP is still overvalued and is a 2-star stock.
What Does it Mean for Shareholders?
If the deal is approved by shareholders, owners of BHP plc (London) will receive shares in BHP Ltd (Sydney) on a one-for-one basis. “Unification would result in a corporate structure that is simpler and more efficient, reduce duplication and streamline our governance and internal processes,” BHP says. If it does go ahead, index trackers would be forced to sell BHP shares as the company exits the FTSE 100.
Chris Beauchamp, chief markets analyst at IG, thinks the share price volatility this week in BHP shares reflects the “prospect of an ugly tussle with shareholders” over the decision. Dividends would be at the heart of the row as the company is set to return $15 billion to shareholders in this financial year: “BHP’s move will go down badly with many UK investors, who will have grown accustomed to the solid dividends on offer at the miner.” According to the Link Dividend Monitor, mining companies paid out £6.3 billion to shareholders in Q2, making up a quarter of the total paid out by the UK companies in the period. They were also responsible for two-thirds of the special dividends paid out by FTSE firms in the most recent three-month period. Mining dividends were a bright spot in an otherwise gloomy year for UK income seekers in 2020 – UK income fell by 44% in the year to just over £60 billion.
BHP’s shares have also rebounded strongly from the coronavirus crash and are up 20% in a year. Prices of commodities mined by BHP including iron ore and copper have surged as global industrial activity has rebounded from the pandemic.
This latest move comes at a difficult period for UK plc, especially with the frenzy of private equity deals this summer, which may see stock market stalwarts such as Morrisons, Meggitt and Ultra Electronics taken private.
Has This Happened Before?
The most recent precedent for a company delisting from the FTSE 100 is Anglo-Dutch consumer giant Unilever (ULVR), which proposed in 2018 shifting its headquarters to Rotterdam from London, a move that would have involved delisting from the FTSE 100. The plan was abandoned after a strong reaction among institutional shareholders like GAM, Royal London and Columbia Threadneedle.
At the same time BHP is planning to divest its oil business and merge them with Woodside Petroleum, which would be a “seismic shift” for the miner, according to Morningstar’s Hodge. “The Woodside merger is just another in a series of steps to broadly exit fossil fuels and orientate to commodities more likely to benefit from reduced carbon emissions,” he adds.
AJ Bell investment director Russ Mould believes that shareholder pressure to divest carbon-intensive assets is behind the decision, but it’s a tricky balancing act especially if crude prices rise further next year: “BHP will wish to appease investors and environmental pressure groups by disposing of the assets. [But] there is the danger that BHP destroys shareholder value by selling too cheaply, especially if oil and gas fields prove to have a longer lifespan that many expect or hope.”
BHP traces its roots back to nineteenth century Australia and was floated there in 1885. The company merged with London-listed Billiton in 2001 and became BHP Billiton – the merged group became simply BHP in 2018.
