BHP shares soar on merger plans

Billiton bauxite operations in Australia

In this story: A "sensational fit" Melbourne headquarters Bonus issue RELATED SITES

By Grant Holloway
CNN.com Writer

MELBOURNE, Australia (CNN) -- BHP's shares have soared and the company's credit rating has been upgraded following its deal to merge with UK-based metals giant Billiton.

In afternoon trading Monday, BHP shares were 37 Australian cents stronger at $21.33, after trading as high as $22.05 after the deal was announced.

QUOTE "The combined entity will provide substantial portfolio diversification (both product and country), reducing its exposure to any one commodity or country." - Standard & Poor's

In a vote of confidence for the deal, ratings agency Standard & Poor's has placed BHP's credit ratings on a positive watch, saying upgrades will likely take place if the merger proceeds.

In what will be Australia's largest ever corporate deal, mining company BHP will merge with London-based metals group Billiton to create a $28 billion resources giant.

ALSO Deal is Anderson's ultimate triumph Merger prompts BHP Steel spin-off

BHP's long-term debt is currently rated A minus by Standard and Poor's and the short-term debt ranks A2.

Standard and Poor's said the combined entity "will benefit from an excellent market position that, relative to the global mining and metals peer group, will have significant size and economies of scale advantages".

"In addition, the combined entity will provide substantial portfolio diversification (both product and country), reducing its exposure to any one commodity or country," the ratings agency said.

BHP will add Billiton's aluminium, metals and mineral sands operations to its own iron ore, copper, diamonds, coal, gas and oil businesses, making it the second largest resources house in the world after US-based Alcoa.

A "sensational fit"

The new company, to be called BHP Billiton, will be 58 per cent owned by BHP and 42 per cent by Billiton.

"This is a sensational fit," BHP chief executive Paul Anderson said in a media statement Monday morning.

"The companies balance each other well, with an exceptional breadth of assets and capabilities which have taken many years to develop. The outstanding project portfolio is enhanced by a strong balance sheet, strong capital disciplines and a common commitment to shareholder value".

Chairman and chief executive of Billiton Brian Gilbertson said: "The financial strength, international scope, and enhanced project skills of the combined group should bring major new growth opportunities internationally."

BHP said the rationale of the merger was for each company to gain world class positions in commodity businesses to which the other has no existing exposure.

"The merger will result in shareholders of each company gaining exposure to those commodities without the risks normally associated with developing new projects and businesses," the company said.

Melbourne headquarters

The new company will be headquartered in Melbourne, Australia, but maintain a substantial corporate presence in London.

BHP's Anderson will run the company until the end of 2002 to be succeeded by Brian Gilbertson, who will act as deputy chief executive until then.

Billiton aluminium ingots

The company will be listed on the Australian Stock Exchange and the London Stock Exchange with a secondary listing in Johannesburg, South Africa and an American Depository Receipt listing on the New York Stock Exchange.

The merged company will have revenues of about $18.6 billion and earnings before interest and tax of $3.3 billion for the 12 months to December 31, 2000. It will also deliver estimated pre-tax merger benefits of $270 million in financial year 2003.

Bonus issue

The merger is subject to shareholder and regulatory approval and BHP shareholders will receive a bonus issue of 1.0651 BHP shares for each BHP share held. This will lift the total number of shares on issue in both companies following the merger to 6,024 million.

Also under the deal, BHP will spin off its steel assets to shareholders as a separate business.

The spin off is expected to be completed by end 2002 and speeds BHP's move out of manufacturing and into a pure resources play.

BHP
Billiton

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