Don Argus backs BHP demerger

Pengana Capital fund manager Tim Schroeders said the demerger was a worthy exercise, but he said the divestment of a collection of struggling assets won’t do much to ensure the company’s long-term primacy as the China boom evolves away from steel production. ‘‘You still have three divisions contributing circa 90 per cent of the earnings and the commodities for those three divisions have been falling,’’ he said, in reference to iron ore, petroleum and copper. ‘‘It is unclear how are they going to reposition the business for longevity from here on.

Deutsche analyst Paul Young said investors had been more focused on an imminent round of shareholder buybacks in recent months than the prospect of a demerger. ‘‘If they decide to go along the demerger path that will be a step in the right direction, but it may actually not be material to BHP given the value of the assets being talked about,’’ he said.

Mr Corbett said a demerged entity must be given some profitable assets as well as the troubled ones if it is to successful. ‘‘This can’t be a company of assets that doesn’t make cash or is losing money so there has to be some assets in there that are performing,” he said. ‘‘There must be assets in the portfolio that BHP think the market does not value at all and if they were stand-alone with a dedicated management team then a dedicated management team can do something with them.

A demerger of a selection of assets is our preferred option,’’ the statement says. ‘‘The board expects to consider this, and other matters, when it reconvenes next week.

Read more here: SMH


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