BHP shares jumped more than 4% at one stage yesterday after it confirmed its long-awaited capital management program using the proceeds of its abortive US oil and gas campaign that cost it more than $US20 billion in impairments.
BHP shares ended at $33.11, up 2.8% cutting October’s 7% slide by more than a third in a day.
Half of the money will be distributed via a special dividend expected to be paid in January next year, while the remaining $US5.2 billion will be devoted to an off-market buyback.
The buyback will happen first.
Rio Tinto shares rose 2.1% t0 $78.00 and Fortescue Metals Group were up 2.8% to $4.11 as it continued buying back shares under its recently triggered $500 million, 12-month program.
BHP said yesterday (Thursday) that it plans to return $US10.4 billion ($A14.7 billion approx) to shareholders through the combination of an off-market buy-back and a special dividend.
To participate in the buyback, investors will have to hold shares as of today, November 1. Shareholders who participate in the buyback will not be able to take part in the special dividend, meaning they will have to make a difficult decision.
The buyback has been promised for months since the company sold its faltering US onshore shale oil and gas assets to BP and a small US company for $US10.8 billion.
BP announced on Wednesday night, our time that it had paid BHP for the assets – hence BHP’s announcement of the buyback and special dividend first thing Thursday morning.
BHP said the program will start immediately with an off-market buy-back of $US5.2 billion ($A7.3 billion) of BHP Billiton Limited shares under which BHP Billiton Limited can buy back shares at up to a 14% discount.
BHP said intends to pay the balance of the net proceeds from the sale of its Onshore US assets (expected to be US$5.2 billion) to all shareholders in the form of a special dividend to be determined following completion of the Off-Market Buy-Back, and to be payable in January next year.
BHP Chief Executive Officer, Andrew Mackenzie, said “We made a commitment that all the net proceeds from the disposal of our Onshore US assets would be returned to shareholders and we are honoring that commitment now that the sale transactions have been completed. Returning this US$10.4 billion will bring the total cash returned to shareholders to US$21 billion over the last two years.”
BHP expects all shareholders to benefit from the Off-Market Buy-Back as for some BHP Billiton Limited shareholders, depending on their tax status, the after-tax return from participating in the Off-Market Buy-Back may be greater than the return from the sale of their shares on-market.
It said, “the Off-Market Buy-Back is expected to improve return on equity, cash flow per share and earnings per share for all shareholders who continue to hold shares in BHP.”
The company said, “the Off-Market Buy-Back is an efficient means of returning capital to shareholders, including as a result of the discount of up to 14 percent available to BHP Billiton Limited under the Off-Market Buy-Back.”
BHP said it expects to announce the results of the Off-Market Buy-Back on Monday, December 17, 2018.
“Following completion of the Off-Market Buy-Back, BHP intends to determine the Special Dividend on Monday 17 December 2018, with the per share dividend amount to be calculated by reference to the reduced number of shares on issue following completion of the Off-Market Buy-Back.
“The Special Dividend will be fully franked and, according to the indicative timetable included in this announcement, paid on Wednesday 30 January 2019, with a dividend ex-entitlement date of Thursday 10 January 2019 on the Australian Securities Exchange, London Stock Exchange, and New York Stock Exchange, and Wednesday 9 January 2019 on the Johannesburg Stock Exchange,” the company said.
BHP said that for shares successfully tendered into the Off-Market Buy-Back, the cut-off date for franking credit entitlement under the 45-day rule, for the purposes of the Off-Market Buy-Back, is today, Thursday, November 1, 2018.
Importantly for shareholders, BHP also said that “Having regard to the scale, nature, and timing of the intended Special Dividend, BHP’s Dividend Reinvestment Plan will not operate with respect to the Special Dividend.”
“Shareholders will not be entitled to the Special Dividend in respect of shares that are successfully sold into the Off-Market Buy-Back. This is because the Special Dividend will be paid after completion of the Off-Market Buy-Back,” the company said.
