Sydney view: BHP investors bullied into merger deal

By GILES PARKINSON

In the 1970s there was a wonderful TV comedy character called Aunty Jack - a big hairy bloke in a frock with a moustache and a motorbike, whose favourite expression was: "You better do what I say or I'll rip your bloody arms off."

BHP chief executive Paul Anderson might have been a good friend. He shares Aunty Jack's fascination with motorbikes and his message to shareholders as he has been trying to sell the merger with Billiton these past few weeks has been just as blunt. "Trust me, or face the consequences."

The BHP-Billiton merger, which creates a unique dual-listed company with an estimated market capitalisation of $A57 billion ($70 billion), will almost certainly be approved by shareholders tomorrow, but only because they feel they have no choice.

Anderson and BHP's chairman, Don Argus, have been spending an exhausting fortnight imploring every fund manager they can find to support the deal. Their message has been simple: a rejection of the merger could spell disaster for BHP and its investors.

Colonial First State Management, one of the biggest funds managers in the country and a unit of Commonwealth Bank, run by Argus' longtime banking rival David Murray, has been one of many institutional investors that have expressed concern about the merger terms.

These concerns have focused on the premium being paid for Billiton's assets - from $4 billion to $6 billion, depending on whom you believe - and the lack of financial detail in the merger documents.

After meeting the BHP hierarchy and the battalion of advisers, Colonial this week issued the most damning of statements about BHP's plans.

"Colonial First State Investments has been reluctant to wholeheartedly embrace the proposed BHP-Billiton merger because we feel BHP could have been more hard-nosed in negotiating a better deal for its shareholders. We still retain those reservations.

"The merger proposal does, however, offer an attractive long-term growth profile for BHP and the infusion of new management that we feel BHP requires to successfully pursue the opportunities for growth that the Billiton merger proposal provides. On balance, taking all factors into account, we have decided to support the merger proposal as we believe it to be in the best interest of shareholders."

It is a tragic epitaph to the greatest of Australian corporates. The company has been accused of selling its shareholders short and has so lost the confidence of its investors that the only good thing they can say about the deal is that at least the considerable growth opportunities thrown open by the merger will be managed by Billiton employees.

It is not surprising. BHP's track record over the past few years has been appalling. It has sunk and lost billions of dollars into disastrous expansion projects such as Magma Copper and the HBI technology.

The common view among analysts and investors is that BHP will gradually lose its identity. Anderson, who plans to leave early, has already agreed to give operational control of BHP's biggest operating divisions to Billiton's Brian Gilbertson.

Most people believe the shift in BHP's head office from Melbourne to London is just a matter of time. After all, the new board will be required to make such decisions in the best interests of shareholders, not on national sentiment.

One of the biggest issues in this merger has been the lack of financial detail provided to investors. The Australian Securities Investment Commission and the Australian Accounting Standards Board are sufficiently concerned to seek talks with their counterparts in Britain and the US.

BHP's message to shareholders was: "This is not time to make a stand on disclosure requirements - imagine the consequences."

The institutions have been scared into accepting that line.

* Giles Parkinson is editor of AFR.com