Controversy over the 2001 BHP-Billiton merger vote
By Stephen Mayne
January 10, 2008
The 88 per cent yes vote for the BHP-Billiton merger in May 2001 was both a furphy and a traversty.
This is what Terry McCrann said in Friday's Herald Sun, presumably in response to Crikey and a piece by Andrew Main The AFR's Street Talk column on Wednesday.
BHP vote in order
By Terry McCrann
Widely syndicated Murdoch columnist
Exactly a week ago, BHP shareholders overwhelmingly endorsed the merger with Billiton.
Yes, they really did despite suggestions to the contrary that the BHP directors nefariously fiddled the proxies.
The facts on the votes are clear and indisputable. On the key resolution that required a 75 per cent approval, some 652 million voted "yes" against 101 million "no". That was an 86.6 per cent endorsement.
The yes vote included 73 million shares that had been lodged as "open proxies" with chairman Don Argus.
So he voted them in favour? So what? It was made quite clear in the explanatory memorandum that this would be done. Even if you "abstain them" , the yes vote would still have been an overwhelming 85 per cent.
Even if you - ludicrously, and unacceptably, give the statement in the memorandum - voted them "no", the merger would still have got up on a 77 per cent vote.
The only way the motion could have been defeated would have been to vote the open proxies "no", and to count 48 million abstentions as also "no" votes, by including them in the total number of votes.
So fewer votes were cast on this motion than all the other ones? Again, so what? That happens all the time. Clearly many shareholders for whatever reason passed on this motion.
So only a majority of the total BHP shares were voted? Again, so what? Voting at company meetings is not yet compulsory.
To suggest that as a consequence, the merger lacks legitimacy, is almost as silly as implying the whole exercise was shonky.
ends
Now, this is what Andrew Main had in last Wednesday's The Fin Review :
BHP by numbers
It's no surprise that BHP management was quick to trumpet an 88 per cent voting rate in favour of the BHP Billiton merger last week, but a bit of sober assessment of the numbers suggests they were a bit selective with the numbers.
Look, for example, at item two, the critical vote to adopt the new constitution that needed 75 per cent of the votes cast at the meeting. Proxies in favour accounted for 70.5 per cent of the votes on the item - which is only 29.7 per cent of the overall shareholding. Meanwhile, a nerve-racking 5.6 per cent of the shareholding, or just over 100 million votes, went against. Significantly, more than 1 billion shares of the 1.78 billion on issue did not vote. Thanks for your interest.
Abstentions were interesting, too, if ultimately not counted because - under the law - an abstention is not counted as a vote. While there were only 6.08 million abstentions on the first vote - the simple vote to approve the merger in which 88 per cent of the votes cast were in favour - there almost eight times as many abstentions on the critical agenda item two as there were on the first one: 47.67 million. Effectively this was the institutions indicating they had voted yes to the overall plan, but there was something in the deal causing them to register a protest.
Another interesting aspect is that chairman Don Argus went into the meeting with 73.23 million "discretionary" votes in his pocket, or 4.1 per cent of the stock, which gave him, in total, a bare 75.3 per cent of the vote, at his discretion, on item two. Of course, he was going to vote the discretionary votes in favour, having thrown himself publicly behind the merger, but it is an interesting thought that the voting at the meeting could still have tipped the plan over. With over half the stock not having lodged a proxy and with some institutions muttering a "No" vote on the day of the meeting, it could have been a very close run thing indeed. Our numbers are that only 4.8 per cent of the stock was voted at the meeting, and almost all of that in favour.
ends
There are a few key points that neither of these commentators have picked up on yet and that really should be properly debated in the public arena.
First and foremost is the issue of whether Don Argus should have disclosed the proxy votes to the meeting. After about four hours I stood up and asked to see them before the poll was called and to also hear what the board intended to do with the open proxies.
Don stated that he preferred not to reveal them because they could intimidate voters. He then called for a show of hands on the issue and, inexplicably, the meeting voted to be kept in the dark on the proxies.
A Crikey subscriber emailed BHP spin doctor Rob Porter on this issue of disclosure and this is what he said in reply:
BHP's Robert Porter wrote:
I provide the following:
* the proxy votes received before the EGM is confidential information. The Chairman asked the meeting whether the meeting wished him to disclose the votes and the answer was in the negative. It is hardly appropriate for me to disclose these figures. Most institutional proxies had been received prior to the EGM. The final vote after the EGM, as compared with the going in situation, did not vary in any material or significant sense.
* The voting statistics were released to the ASX last Friday - they speak for themselves in terms of the views of the collective shareholder intentions on the merger.
* the voting level for the merger was considerably higher than previous AGMs and EGM voting levels, reflecting the fact that our shareholder base took a strong interest in the merger and exercised their rights accordingly.
So there you have it, no more information from BHP.
Labor's financial regulation spokesman Senator Stephen Conroy emailed Crikey last week with the following:
"Dear Stephen, BHP should release a detailed breakdown of the voting to ensure a fully informed market.
Regards, Conroy"
There you go BHP, even the pollies are calling for you to come out with the facts now get on with it.
Even someone from Computershare who emailed Crikey leaves the clear impression that BHP should be disclosing:
Why BHP should disclose
Section 250J(1A) of the Corporations Law is what you are referring to. Before a vote is taken (would generally be a show of hands unless a poll is demanded) the chair MUST inform the meeting whether any proxy votes have been received and HOW the proxy votes are to be cast.
It would therefore be appropriate for the chair to indicate to the meeting the number of directed votes (FOR and AGAINST) and the number of OPEN or undirected votes (although the number does not have to be advised) and how the chair intends to vote on those open votes that are held by him in his capacity as Chair as distinct from any other open votes that may be held by other proxies for which the chair may not have any knowledge of how they will be voted.
It should be noted that this rule 250J is a replaceable rule and as such s135(2) means that the rule can be displaced or modified by the company's constitution - so make sure you check that section of the company's constitution that relates to meetings , but otherwise if not displaced or modified - and most wouldn't I suspect in this area - then you can apply 250 J
Cheers, Anon
Now, what about McCrann's opening line that "BHP shareholders overwhelmingly endorsed the merger with Billiton".
This is a fact that we simply don't know because BHP has refused to disclose it.
We know that a comfortable majority of the shares voted were in favour but I am convinced that a majority of BHP's 200,000 shareholders did not endorse this deal.
Computershare have been telling people that the top 20 BHP shareholders controlled 80 per cent of the stock.
They should also tell us exactly how many shareholders lodged votes and whether they were in favour, against, abstaining, appointing a nominated proxy or appointing the chairman as proxy by default. They should also tell how many shares were voted in this manner as that is a completely separate issue to the numbers of shareholders.
Afterall, this is the most important vote that corporate Australia has ever taken and with Labor threatening to make voting compulsory for institutions we at least need to get a detailed break down of the figures.
My suspicion is that a very small minority shoe-horned this deal through amd tens of thousands of small BHP shareholders have voted against this deal. It has probably been carried by institutions who purport to represent these very same small investors.
Anyway, this is the statement that BHP gave to the ASX at 5pm after the merger vote. They failed to post this on their website as promised, again suggesting the Big Australian has something to hide.
RESOLUTION TWO
* To adopt the new Constitution, subject to completion of the DLC Merger ("Completion")(a special resolution)
- Total number of proxy votes exercisable by all proxies validly appointed - 750,021,228
- Total number of proxy votes in respect of which the appointments specified that the proxy:
* was to vote for the resolution - 528,882,004
* was to vote against the resolution - 100,233,018
* was to abstain on the resolution - 47,675,097
* may vote at the proxy's discretion - 73,231,109
- Final Votes cast in favour - 651,542,457
- Final Votes cast against 100,530,380
- Final Votes cast abstaining - Nil
It is very odd that the abstain proxies on resolution two would be 47.67 million but they are no higher than 18.5 million for the other 11 resolutions and they are only 6.08 million for the first resolution which deals with approving the merger. If you wanted to lodge a protest by abstaining on resolution two then you may as well have done the same on resolution one.
As Andrew Main noted, Don Argus only had 70.4 per cent of the lodged proxies cast in favour of resolution two when the meeting began. That is the "for" figure of 528.8 million divided by the total proxies lodged of 750.02 million. The percentage "for" figure rises to 75.3 per cent if you exclude the abstain votes so it was a real line ball question before the meeting began, especially when you consider that 58 per cent of BHP's capital had not been voted by way of proxy and could have been voted directly by the shareholders turning up at the meeting.
Miraculously the final "for" vote soars from 528.88 million to 651.54 million in the final count whereas the "against" vote in proxies of 100.23 million shares only crawls fractionally higher to a final yes vote of 100.53 million.
So after everyone sat through four and a half hours of people bollocking this merger idea, BHP is trying to tell us that only 300,000 shares were voted against the merger at the meeting but somehow the "yes" vote soars by 122.66 million at the meeting.
Part of this hard to believe figure is probably explained by what is called the use of open proxies when someone simply signs the proxy form but does not direct a vote or nominate a proxy.
These shares default to the chairman but BHP has failed to give a breakdown of the number of votes Don Argus had in his back pocket from this mechanism. At AGMs when Crikey has stood for the board (Telstra springs to mind), the chairman usually discloses the open proxies in a second column.
Interestingly, Don's old firm, the National Australia Bank, set a good precedent last December when they promised not to vote the open proxies and an amendment to the ASX listing rules is about to ban this practice.
Labor's federal corporate governance spokesman Senator Stephen Conroy strongly attacked this system in a recent speech to the Australian Shareholders' Association and it is urgently in need of reform.
It is an absolute rort because why should the chairman be the default mechanism for dopey shareholders who simply sign the form and send it back without casting a vote or appointing a proxy. Executives at ASX Perpetual have estimated to Crikey that about one-third of all forms returned to them are simply signed without any direction so they default to the chairman.
It is clear that virtually the entire 73.23 million shares in the "may vote at the proxy's discretion" category were cast in favour of the merger and BHP has so far refused to reveal how many of these were voted by the chairman. My suspicion is that it is the vast majority and BHP has done exactly what Woolworths did last year when then chairman John Dahlsen used open proxies to get the vote for my board candidacy down from 58 per cent to 44 per cent.
Paul Anderson was claiming to have a strong mandate after the meeting and that the 88 per cent vote in favour was only three per cent less than what Billiton got in London last week.
He should remember that only 29.5 per cent of BHP's 1.79 million shares on issue were directly voted in favour of the proposal to change the BHP constitution by way of proxy. The figure rises to 37.4 when you include the use of the open proxies and shares voted directly at the meeting.
The Capital Group of Los Angeles is BHP's largest shareholder with about 160 million shares or 8.5 per cent. If they had voted against rather than in favour this deal would have gone down in a big way. But the Capital Group also owned about 4 per cent of Billiton so you could argue that they had a conflict of interest.
The merger could also have failed if Colonial had voted their full 3.3 per cent - about 57 million shares - against the deal rather than in favour. We all know that BHP director John Ralph is the chairman of the Commonwealth Bank which owns Colonial.
This may be a little premature but BHP will need to clarify all of these voting categories or some smart lawyer could slap a legal challenge on the outcome. Afterall, FIRB and the EC are yet to approve it.
Personally, I reckon it was unconscionable the way the board held a gun to the head of investors by implying that both chairman Don Argus and CEO Paul Anderson would quit if the vote went against them. I asked Argus for a commitment that he and Anderson would stay in the event of a no vote getting up but he would only say they would "consider their positions" which is code for "I'll quit and the shares will tumble".
Argus told the meeting that BHP would "wither on the vine" if the merger did not proceed and that it would struggle to attract good managers. You can use this merge or die argument with debt-ridden Bonlac but it is patently misleading to run this line when BHP had a market capitalisation of $40 billion on the day we all voted.
That they could do this whilst proposing something that was not supported by an independent expert's report and that, according to unionists at the meeting, had an "against" recommendation from Corporate Governance International - Australia's leading proxy advisory service for institutions - is reprehensible in Crikey's view.
It is now up to the media, regulators, politicians and BHP shareholders to demand to know the answers to a few key questions from Computershare and the BHP board.
1. How many shareholders appointed BHP chairman Don Argus as their proxy by signing the voting form without naming a proxy or voting?
2. How many shares did Don Argus vote in favour of the deal as default proxy?
3. How many shareholders voted in favour of the deal and how many voted against it? My suspicion is that a majority of shareholders voted against the deal. A good example of this was my candidacy for the Commonwealth Bank board last year when the yes vote was only 40 per cent of the primary votes cast but this came from 17,500 shareholders voting in favour compared with only 5500 voting against.
4. How did the top 20 shareholders vote? Computershare claims the top 20 own 80 per cent of BHP but only 46 per cent of BHP's 1.79 billion shares on issue were voted.
5. Exactly what did Don Argus and Paul Anderson say to fund managers in order to persuade them to vote for a deal that JB Were estimated transferred $5.4 billion from BHP shareholders to Billiton.
When Don Argus walked into that meeting last Friday this was the position on the all-important second resolution:
Percentage of shares voted in favour by proxy: 29.5%
Percentage of shares voted against by proxy: 5.6%
Percentage of shares voted to abstain by proxy: 2.66%
Percentage of shares to be voted by proxy at the meeting: 4.09%
Percentage of shares where proxy not lodged that could be voted at meeting: 58.1%
If you exclude the 58.1 per cent - 1040 million shares - not committed to a proxy position, the percentages are as follows:
% in favour: 70.4%
% against: 13.36%
% at proxy discretion: 10.43%
% abstain: 6.36%
Clearly the vote could have gone either way but it seems 1040 million shares were not voted either way. Why the hell not?
Finally, this is yet another assessment that suggests billions of value has been transferred to billiton.
DEUTSCHE BANK REVEALS THE LOST BHP VALUE
The approval of the merger of BHP and Billiton has been granted. Now the market must digest the impact of this on the financial quality of BHP pre-merger compared to its forecast of performance post-merger.
Our financial analysis of the combined group has three essential conclusions:
1.The merged group will have lower ROE performance of ~15-17% compared to BHP unmerged of ~15-25% for the years 2001-03.
2.Our valuation of BHP pre-merger was A$21.40 compared to A$18.99 on a post merger basis (backing out the bonus adjustment).
3.Our price target has been reduced from A$28 to A$26, which equates to $12.60 after the bonus issue. Buy rating retained, though we stress our first preference is Rio Tinto.
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