Key points
- BHP shareholders are voting next week to unify its corporate structure
- This will create the biggest company on the Australian share market
- One fund manager believes Australian investors are getting a bad deal
Next week is a big week for the BHP Group Ltd (ASX: BHP) share price and the Australian share market.
On 20 January, the Big Australian's shareholders will vote on the unification of its corporate structure under its existing Australian parent company.
The BHP Board believes that unification is in the best interests of shareholders. It notes that it will result in a corporate structure that is simpler and more efficient, reduces duplication, and streamlines BHP's governance and internal processes.
Furthermore, a unified structure will also improve flexibility for portfolio reshaping to maximise shareholder value over the long-term. This includes facilitating a simpler separation of the Petroleum business.
It will also lead to BHP overtaking Commonwealth Bank of Australia (ASX: CBA) to become the largest company on the ASX with a market capitalisation of ~$230 billion. This is almost $60 billion greater than CBA's market capitalisation.
This has consequences for the Australian share market and the ASX 200 index. With a market capitalisation of $230 billion, BHP will account for ~10% of the market's total value. This means that the performance of the BHP share price will have a major impact on the overall performance of the ASX 200.
Opinion is anything but unified
Whether the unification is a good thing or not is a divisive subject in financial markets.
The team at Pendal Group Ltd (ASX: PDL) is not a fan of the move and believe it favours UK investors at the expense of local investors.
Pendal's Head of Equities, Crispin Murray, commented: "This proposal is transferring value from Australian Limited shareholders to offshore PLC shareholders. This value transfer has been evidenced by the material decline in the Australian multiple of earnings that BHP Ltd trades on."
"We appreciate that the main reason for the proposal is the greater flexibility it provides to do large M&A deals in the future. However, there are two questions we have around this. Firstly, BHP has had a poor track record in this regard historically. There is a risk that Australian shareholders pay the price for the unified corporate structure and then see more value destruction overtime. Secondly, while a unified corporate structure will make doing scrip-based M&A easier, the decline in multiple potentially negates this," he added.
In light of this, Mr Murray is urging shareholders to vote against the proposal.
Over at WAM Capital Limited (ASX: WAM), its team think shareholders should approve the plans.
According to the AFR, the fund manager's Portfolio Manager, Matt Haupt, believes the unification makes sense for everyone in the long run.
He said: "We are very much in favour. I think the [dual-listed company] structure was outdated and unification makes sense in the long run for everyone. A lot of the risk was borne on the Aussie shareholders, so I get why some people have a bit of a bitter taste, but I think in the medium to long term it makes sense and I think it is a great thing to happen."
This sets things up for an interesting vote next week.
