BHP Billiton (ASX:BHP) has announced further details surrounding the demerger of South32. The 2000 page document detailed a plan to simplify the business structure of both companies and allow each of them to focus on their own prospects. The restructuring will simplify BHP from 41 assets in 13 countries to only 19 assets in eight countries. The performance of South32’s aluminium, silver, coal, manganese, and nickel assets have consistently been out-performed by the significant iron ore, petroleum, copper and metallurgical coal assets of BHP. “The demerger will simplify BHP Billiton and has the potential to unlock shareholder value, while creating a new global diversified metals and mining company with a significant industry presence in each of its major commodities,” said BHP Chairman Jac Nasser.
Although the spin-off will cost BHP $US738m in one-time restructuring costs, the company expects it will save $US100m annually from the demerger. South32 has reported gross assets of $26.7bn at the end of 2014. BHP is committed to starting South32 from strong financial position. South32 will start their life with $965m in debt, which is only a fraction of the $40.81bn in debt that BHP currently holds. They will also start their life with $1.5bn set aside for future site rehabilitation costs. BHP estimates that South32’s costs will rise $US60m. However, BHP believes those costs will be offset by saving from the new regional structure of the company.
Shares of BHP are up 43c, or 1.4 per cent, at $29.83 so far today. If the deal is officially approved, BHP shareholders will be able to acquire one share of South32 for each share of BHP they already own. Small shareholders who own less than 10,000 shares will be able to sell their shares for cash directly to BHP. South32 intends to list their company on the Australian Securities Exchange, the London Stock Exchange and the Johannesburg Stock Exchange. Chairman Jac Nasser has confidence in the independence of South32 and encourages shareholders to recommend this potentially lucrative deal. “Having assessed a number of alternatives, the BHP Billiton board considers the demerger to be the preferred approach to achieving simplification of our portfolio and maximising shareholder value. The board unanimously recommends that shareholders vote in favour of the demerger.”