European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Selected European Holdcos and DLCs: November Report

Selected European Holdcos and DLCs: December '21 Report

Selected European Holdcos and DLCs: June Report

Selected European Holdcos and DLCs: May Report

Selected European Holdcos and DLCs: April Report

Event-Driven

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Corrigenda: There is an error in this Insight. Please note the correction.
Correction: [Under the section “Collapsing of BHP’s DLC”, subsection “Conditions and approvals”, the Ltd leg does not need a headcount test for approval, while the UK leg does.]
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BHP has decided to streamline its market listings <a href="https://www.smartkarma.com/entities/bhp-group-ltd" target="_blank" data-smartkarma-citation="entities:147:1" rel="noopener">BHP Group (BHP AU)</a> and <a href="https://www.smartkarma.com/entities/bhp-billiton-plc" target="_blank" data-smartkarma-citation="entities:21840:1" rel="noopener">BHP Billiton (BLT LN)</a> after the company confirmed plans to dispose of its oil and gas business in an all-share merger with <a href="https://www.smartkarma.com/entities/woodside-petroleum-ltd" target="_blank" data-smartkarma-citation="entities:177:1" rel="noopener">Woodside Petroleum (WPL AU)</a> (52% Woodside, 48% BHP, completion expected Q1 2022). The disposal will help BHP focus on mining iron ore, copper and nickel. 
The DLC collapse, which has not yet been agreed, will result in a "simpler and more efficient" structure, with greater flexibility to shape its portfolio. The main listing will be in Sydney, with a standard listing on London Stock Exchange and a secondary one on the Johannesburg Stock Exchange. This will need approval from the Board and others. One-off costs are c. USD400-500 mn, with completion expected in H1 CY22. It will be carried out as a scheme of arrangement, thus requiring 75% approval by Ltd and Plc shareholders. 
The Sydney listed BHP Billiton has, since its debut in March 2001, traded at a premium to the London listing. As of my last insight on European DLCs and HoldCos, the premium of <a href="https://www.smartkarma.com/entities/bhp-group-ltd" target="_blank" data-smartkarma-citation="entities:147:1" rel="noopener">BHP Group (BHP AU)</a> vs.  <a href="https://www.smartkarma.com/entities/bhp-billiton-plc" target="_blank" data-smartkarma-citation="entities:21840:1" rel="noopener">Bhp Billiton (BLT LN)</a> at close of June was 23.8% (vs. 21.8% at the end of April), against a 10-year average of 14.7%. My recommendation then was "rather be long the UK plc and short the Aussie Ltd through the US listings".
This on-going discount on the London market is due to the majority of shareholders in BHP Billiton being ex BHP Ltd shareholders, and the index weighting of BHP AU versus BHP LN, in my view. I believe that the main factor influencing the recent widening of the discount between BHP AU and BLT LN is the commodity price cycle. Australian fund managers cannot be heavily underweight in the mining sector, which represents c. 20% of the ASX. Because of asset allocation constraints, an Australian fund manager may not be able to invest in the UK line of a DLC even if it is at a discount to the Australian line.
BHP Billiton will leave the FTSE 100 index and shift its primary listing to Sydney, with a secondary listing on London Stock Exchange and Johannesburg Stock Exchange. This will force index tracker funds to sell their shares.
The unification of BHP will be similar to that of Brambles. On 29 November 2005, the Brambles Board announced its intention to streamline the Brambles Group by selling Cleanaway, Brambles Industrial Services and Regional Businesses and focusing on CHEP and Recall, its businesses with premium growth potential. This was followed by the unification of the DLC Structure under a single Australian holding company with a primary listing on the ASX and a secondary listing on the LSE. Brambles filed on September 13th, 2006 an Information Memorandum relating to the abolition of DLC structure. The abolition was structured as two parallel Schemes of Arrangement. The unification of the DLC was approved by the EGMs and Brambles delivered a conversion to a single equity. The c. 3% discount at the time of announcement was eliminated.
The economic logic for collapsing the DLC is compelling, and I believe it will be carried out. The premium of BHP AU to BLT LN is shrinking fast, from 21% prior to announcement. However, it is still 6.1%, which is still an interesting level.
Recommendation is long BLT LN/Short BHP AU. It can also be done through the US listings.


Corrigenda: There is an error in this Insight. Please note the correction.
Correction: [Under the section “Collapsing of BHP’s DLC”, subsection “Conditions and approvals”, the Ltd leg does not need a headcount test for approval, while the UK leg does.]

BHP has decided to streamline its market listings BHP Group (BHP AU) and BHP Billiton (BLT LN) after the company confirmed plans to dispose of its oil and gas business in an all-share merger with Woodside Petroleum (WPL AU) (52% Woodside, 48% BHP, completion expected Q1 2022). The disposal will help BHP focus on mining iron ore, copper and nickel. 
The DLC collapse, which has not yet been agreed, will result in a "simpler and more efficient" structure, with greater flexibility to shape its portfolio. The main listing will be in Sydney, with a standard listing on London Stock Exchange and a secondary one on the Johannesburg Stock Exchange. This will need approval from the Board and others. One-off costs are c. USD400-500 mn, with completion expected in H1 CY22. It will be carried out as a scheme of arrangement, thus requiring 75% approval by Ltd and Plc shareholders. 
The Sydney listed BHP Billiton has, since its debut in March 2001, traded at a premium to the London listing. As of my last insight on European DLCs and HoldCos, the premium of BHP Group (BHP AU) vs.  Bhp Billiton (BLT LN) at close of June was 23.8% (vs. 21.8% at the end of April), against a 10-year average of 14.7%. My recommendation then was "rather be long the UK plc and short the Aussie Ltd through the US listings".
This on-going discount on the London market is due to the majority of shareholders in BHP Billiton being ex BHP Ltd shareholders, and the index weighting of BHP AU versus BHP LN, in my view. I believe that the main factor influencing the recent widening of the discount between BHP AU and BLT LN is the commodity price cycle. Australian fund managers cannot be heavily underweight in the mining sector, which represents c. 20% of the ASX. Because of asset allocation constraints, an Australian fund manager may not be able to invest in the UK line of a DLC even if it is at a discount to the Australian line.
BHP Billiton will leave the FTSE 100 index and shift its primary listing to Sydney, with a secondary listing on London Stock Exchange and Johannesburg Stock Exchange. This will force index tracker funds to sell their shares.
The unification of BHP will be similar to that of Brambles. On 29 November 2005, the Brambles Board announced its intention to streamline the Brambles Group by selling Cleanaway, Brambles Industrial Services and Regional Businesses and focusing on CHEP and Recall, its businesses with premium growth potential. This was followed by the unification of the DLC Structure under a single Australian holding company with a primary listing on the ASX and a secondary listing on the LSE. Brambles filed on September 13th, 2006 an Information Memorandum relating to the abolition of DLC structure. The abolition was structured as two parallel Schemes of Arrangement. The unification of the DLC was approved by the EGMs and Brambles delivered a conversion to a single equity. The c. 3% discount at the time of announcement was eliminated.
The economic logic for collapsing the DLC is compelling, and I believe it will be carried out. The premium of BHP AU to BLT LN is shrinking fast, from 21% prior to announcement. However, it is still 6.1%, which is still an interesting level.
Recommendation is long BLT LN/Short BHP AU. It can also be done through the US listings.

BHP's DLC Unwinding, Following Brambles' Trail

BHP Group Ltd

BHP's DLC Unwinding, Following Brambles' Trail