Everything you need to know about the reunification of BHP (ASX:BHP)
With the reunification of BHP Group Ltd. (ASX: BHP) now over, investors are probably scratching their heads thinking what’s all the fuss about?
This guide will explain the consolidation process, its impact on your shareholders and what it means for the market.
BHP brings together
Prior to reunification, BHP had a dual-listed corporate structure:
- BHP Group Limited, listed on the Australian Stock Exchange (ASX)
- BHP Group Plc, listed on the London Stock Exchange (LSE)
The dual structure was born from the merger between the Australian Broken Hill Proprietary (BHP) and the London company Billiton in 2001.
Each company (Limited and Plc) held 50% of the mining conglomerate.
As part of the reunification, one limited share will be issued for each Plc share.
This is a one-for-one swap, removing legacy Plc shares and placing all BHP shares under Australian listing.
Why choose to unify?
Unification allows simplicity.
For example, BHP will no longer need to hold two shareholder meetings or have two separate boards of directors.
Additionally, the company can raise funds more efficiently rather than across two time zones, regulatory bodies and stock exchanges.
Finally, UK-listed BHP shares have historically traded at a marginal discount to Australian-listed shares.
Reunification will bridge this gap and remove opportunities for arbitration.
The main disadvantage of unification is the initial cost of $350 million and $450 million.
It will also mean that BHP is no longer part of the UK indices and will create potential tax consequences for Plc shareholders.
When is the reunification over?
The reunification was completed on Monday, January 31.
ASX shares are unchanged. However, UK listed shares now trade as limited depositary interests.
There is no impact on BHP shareholders listed on the ASX.
You can still buy and sell BHP shares as usual.
There is also no impact on BHP’s underlying business.
Its management, assets and operations remain unchanged.
Effect on indices and ETFs
Due to the transfer of BHP shares to the ASX, its market capitalization (the number of shares multiplied by the share price) increased to approximately $234 billion.
Subsequently, the weighting of BHP’s secondary indices and exchange-traded funds increased.
The company now represents approximately 10% of the S&P/ASX 200 (ASX: XJO), down from 6%.
It is now the largest company, measured by market capitalization, on the ASX.
The increase in BHP comes at the expense of allocation to other big names such as CSL Limited (ASX:CSL) and Commonwealth Bank of Australia (ASX:ABC).
For the majority of BHP shareholders, the reunification will have no effect.
But for ETF and index investors, it’s worth keeping in mind BHP’s increased weighting in dictating performance.
If you buy an ASX 200 ETF, $100 of every $1,000 will be invested in the mining conglomerate.
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