Diversified mining giant BHP Billiton Limited (ASX: BHP) announced back in August that it plans to spin-off a number of assets via a demerger to create an independent global metals and mining company owning high-quality aluminium, coal, manganese, nickel and silver assets.
Earlier this month, BHP also informed the market that it plans to name this new entity South32. While some investors will be suspicious of a new company which houses what may seem like the less appealing, slower growth assets, the motivation behind the move is to create shareholder value, for which there is certainly a precedent.
2 Big Reasons to own South32
Consider these two recent value enhancing demergers…
Almost one year ago to the day, Brambles Limited (ASX: BXB) shareholders received shares in the now separately listed document management business Recall Holdings Ltd (ASX: REC). The demerger has been a resounding success with Recall's share price soaring 75%.
Meanwhile, packaging giant Amcor Limited (ASX: AMC) also undertook a demerger of its Orora Ltd (ASX: ORA) business around 12 months ago as well. Once again, this move has created significant shareholder value with Orora's share price gaining a total of 63%.
The significant gains by these 'cast-offs' is a reminder that often demerged companies which may house the less exciting assets tend to perform very well as separately listed entities.
The spin-off of South32 is on track to occur within the first half of calendar year 2015. Shareholders in BHP will be entitled to all of the shares in South32 on a pro-rata basis. Given past performance of demerged businesses, for BHP's shareholders it may be best to hang on to the new shares and not discard them. Likewise, investors who don't own BHP should keep an eye on South32 when it lists because just like with Recall and Orora, it is often just after listing that turns out to be the best opportunity to purchase stock.