BHP Billiton - a $68b giant

SYDNEY - BHP is to merge with the British firm Billiton, creating a $A57 billion ($67.8 billion) global resources group.

BHP Billiton will be based in Melbourne and maintain existing primary listings on the London and Australian stock exchanges, BHP said yesterday.

BHP also said it intended to spin-out its complete steel flat products business.

The spin-out of BHP Steel is expected to be completed by the end of next year, BHP said.

The merger will bring together some of the world's top positions in aluminium, coal, copper and iron ore. It will have substantial interests in oil, gas, liquefied natural gas, nickel, diamonds and silver.

Its customer base will be predominantly in Asia, Australia, Europe and North America.

BHP said the board had been considering a range of initiatives to maximise the value of each of its businesses as part of the active management of its asset portfolio.

"The merger with Billiton ... and the consequent further re-weighting of the company's asset base towards minerals and petroleum means that this is an appropriate time to announce the spin-out of BHP Steel to BHP's shareholders, to maximise the ongoing opportunities for prosperity of that business," the Australian giant said.

The aggregate market capitalisation of BHP Billiton is $US28 billion ($66.8 billion), based on the closing prices of BHP and Billiton shares last Friday.

BHP said the company's enterprise value was about $US35 billion.

BHP boss Paul Anderson will be appointed BHP Billiton chief executive officer, ahead of his retirement by the end of next year.

Brian Gilbertson will be appointed deputy CEO and will succeed Mr Anderson.

Mr Anderson said BHP Steel's recent performance had been very strong, particularly given the downturn in the global steel business environment.

"The spin-out will maximise the future prospects for that business by creating a stand-alone company solely focused on the complete steel flat products value chain," he said.

He said the spin-out would enable BHP Steel to capture the market opportunities and ensure its long-term competitiveness, which would not have been possible had it remained part of the BHP portfolio.

"The planned merger with Billiton further expands and changes the future portfolio mix, resulting in BHP Steel comprising approximately 5 per cent of combined BHP Billiton's projected earnings."

Mr Anderson said the merger would bring together some of the world's finest mining, metals and energy assets.

"This is a sensational fit," he said, adding that the dual-listed structure "provides the financial flexibility required to compete in the global capital markets of the 21st century."

Under the terms of the merger, one existing Billiton share will have an economic interest equivalent to 0.4842 BHP shares.

"In order to ensure that the economic interest of each BHP and Billiton share is equivalent following implementation of the DLC [dual-listed structure], there will be a BHP bonus issue to its shareholders at a ratio of 1.0651 additional BHP shares for each BHP share held," the company said.

BHP Billiton said the merged entity would have pro forma revenues of about $US18.6 billion and earnings before interest and tax of $US3.3 billion for the 12 months to last December 31.

BHP said the merger would deliver estimated pre-tax benefits of $US270 million in the 2003 financial year.

Under the deal, the BHP steel assets will be spun-out to BHP shareholders as a separate business.

The spin-off is expected to be completed by the end of next year.

BHP shareholders are expected to hold a 58 per cent interest in the merged group. Billiton will have 42 per cent.

The company said BHP Billiton will consider a proposal to enable BHP shareholders to exchange some or all of their BHP shares for an equal number of new Billiton shares, up to a limit of 10 per cent of the then issued share capital of BHP.

If the transaction does not proceed, $US100 million will be payable by either BHP or Billiton, in certain circumstances.

The merger is subject to shareholder and regulatory approval.

BHP chairman Don Argus will chair the merged group.

- NZPA