Australia okays BHP-Billiton merger

Removing the last major hurdle to a US$28-billion deal, the Australian government has approved the merger between that country’s BHP (BHP-N) and London-based Billiton.

Peter Costello, Australia’s federal treasurer, says no objections will be raised as long as conditions are met to ensure the deal is in Australia’s national interest. These include:

• BHP must remain an Australian company, listed on the Australian Stock Exchange;
• BHP must be the ultimate holding company — it must manage and control the BHP subsidiary companies; and
• The company’s global headquarters must be in Australia.

In a surprise move, BHP and Billiton have announced the resignation of Mick Davis, one of the architects of the merger and a key member of Billiton’s executive team. Davis is off to head up Swiss resource company Xstrata. He will complete his responsibilities as part of the merger before leaving Oct. 1.

Davis was set to become BHP-Billiton’s chief development officer, a role that would see increased importance as the merged entity begins to assess its growth options and acquisition targets.

Chip Goodyear, BHP’s chief financial officer, will replace Davis until a Melbourne-based replacement is found

The companies don’t expect any significant change to the merger as a result of Davis’s departure.

The proposed merger received approval from shareholders of BHP and Billiton in mid-May. Out of 835.4 million votes cast by BHP shareholders, 88.2% were in favour of the deal. More than half of Billiton’s shares were represented in a vote that passed the proposal with 91.5% in favour.

Billiton shareholders voiced some opposition to the company’s executives receiving 14.2 million shares (worth about US$72 million) that are tied to the merger. Originally, these payments would have only been made in the case of a takeover or if out-performance targets had been met. Brian Gilbertson, Billiton’s CEO, stands to receive 1.44 million share options (worth more than US$7.1 million).

BHP shareholders called into question the disclosure of financial information about the merger and the fact that BHP would hold only a 58% stake in the new group. Some valuations placed BHP’s stake at up to 65%.

Shareholders were also worried that BHP-Billiton would become rooted in Britain and lose its Australian identity. The companies have assured them that BHP-Billiton’s headquarters will remain in Melbourne and a corporate management centre will be located in London.

In March, the two companies announced plans to merge under a “dual-listed” structure, meaning that both companies would retain their existing public listings, but would combine their management teams and finances. BHP-Billiton would effectively have about 6 billion shares outstanding and a market capitalization of US$28 billion.

Under the deal, BHP shareholders will receive a bonus of 1.06 shares for every share held. This will even out the economic and voting rights between BHP and Billiton shareholders.

The merger still requires the approval from the European Union and the Australian Securities and Investments Commission. These are expected to be granted this month.