Analysts: BHP buy-out a good move for all

Press, 25 January 1988, Page 26

Analysts: BHP buy-out a good move for all

By

PETER BALE

NZPA-AAP Melbourne

The Broken Hill Pty Co, Ltd’s (BHP) dramatic buy-out of the warring forces on its share register creates new opportunities for the resources giant and its protagonists, according to sharemarket analysts. BHP is spending sAust2.7 billion to remove threats posed by Robert Holmes a Court’s Bell Resources and John Elliott’s Elders IXL, but will have to sacrifice $1 billion in non-strategic assets to do it.

“BHP will emerge leaner and more competitive and Bell and Elders have the cash to look for new plays,” an analyst said.

The sharemarket on Friday confirmed that positive view, analysts said. BHP’s share price was trimmed, reflecting the removal of takeover expectations, but Bell and Elders, soon to be flush with BHP cash, rose. BHP slipped on Thursday evening in London and fell 40c in early Australian trading before climbing back to close 20c Off at 680 c, the margin brokers had expected.

Bell, which before the deal faced heavy debts and huge losses, jumped

18c to 158 c. Elders rose 7c to 322 c and an investment offshoot was also up on rumours that Elders’ shelved restructuring plan may be revived.

Elders’ Elliott said the deal, including the purchase of the BHP shares by the joint venture Beswick Pty, would generate $1.6 billion in profit and freed-up cash. “Our feeling was that either we would own BHP or it would remain independent,” Elliott said. “BHP is very important to Australia as Australia’s largest company and I think you will see a new, vibrant company emerge...” Elliott said he would soon finalise the float of hotels owned by Elders’ Courage Pic unit after concluding deals which deliver effective control of NZ Forest Products under a proposed merger with Elders Resources.

Analysts said the BHP deal unchained huge amounts of Elders and Bell cash trapped in BHP by both the collapse of the stock market in October and BHP managing director Brian Loton’s determination not. to lose control of his company.

“BHP has saved Bell by turning it into a semi-cash box with some investments and put it back into

a cash-positive situation,” an analyst, Wilson Lee, said.

Holmes a Court loses a long-term ambition for control of BHP, which has led him to make four bids since 1983, as well as $296 million on selling BHP two-thirds of his 30 per cent BHP stake. After BHP cancels these units, Bell will' have 12.5 per cent.

But the $2.1 billion Holmes a Court gets for the stake, bringing postcrash disposals to some $4.5 billion, will revive his flagging Bell Resources. Analysts expect Bell to be left with $3OO million cash after debt repayments.

“Holmes a Court can now start looking at other investments but not BHP. We can very comfortably rule that one out,” despite Bell’s BHP toehold, A. C. Goode’s Tony Moody said. Under the BHP/Bell/ Elders agreement, the 300 million shares BHP buys from Bell will be cancelled and Elders’ 19 per cent stake in BHP shifted to a new joint venture company between BHP and Elders. BHP will in turn sell its 200 million Elders shares. The deal, which comes close to breaking Australian laws restricting listed companies investing in their own shares, is sub-

ject to approval from shareholders on February 25 and from the corporate watchdog, the National Companies and Securities Commission. NCSC executive director, Mr Ray Schoer, said he would also investigate heavy turnover in Elders IXL options before the announcement of the BHP pact on Thursday evening. But BHP’s Loton was confident the deal was right for all. “It’s a three way negotiated settlement, so each party has achieved the best it could in present circumstances,” he said.

“The crash was a catalyst for change. You just had to recognise realities. Both Mr Elliott and Mr Holmes a Court were aware of the realities. I don’t think you have to tell them how to suck eggs,” Loton said. While analysts see strong benefits for Bell and Elders in the deal, some wonder whether BHP will miss Holmes a Court’s dynamic influence on its board.

“There is a general feeling that BHP has been more aggressive and more sensitive to shareholders since Holmes a Court’s arrival. How real that is we will just have to wait and see,” said Mr Lee.