Rio Tinto board rejects activist push to dual scrap listing
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The news: Rio Tinto’s board have kept hold of the miner’s London listing, as shareholders voted against activist hedge fund Palliser’s proposal to review the dual-listing structure.
The numbers: 19.35% of Rio shareholders voted for a review of the dual-listing. Under UK regulations, a vote of 20% or more would have forced the company to consult more widely with shareholders.
A combined vote of 75% would have forced Rio to launch the dual-listing review.
The context: In a statement following the vote, Rio said that the company has periodically reviewed the DLC structure many times since it was established and that the structure delivers benefits in terms of capital markets access, shareholder returns and efficient franking credits utilisation.
The company added that any unification of the DLC structure under Rio Tinto Limited would give rise to material issues, including expected tax costs in the mid-single digit billions of US dollars, significant wastage of franking credits (impacting dividends) and a weaker share price.
Palliser, conversely argues that removing the DLC structure would unlock USD28 billion ($43.8 billion) in value for shareholders of Rio’s London shares. The London listing comprises about 77% of Rio Tinto's investor base, but the Australian-listed shares are trading at a premium of about 25%, partly due to tax advantages available to Australian shareholders. Rio’s British shareholders voted at its London AGM on April 3.
What they said: Speaking to shareholders at the Perth Convention and Exhibition Centre, Rio chairman Dominic Barton said: “We’ve considered this topic regularly and objectively over many years…and looked at the benefits and the costs. All of this work showed that unification would be value destructive for the group and its shareholders…We were open-minded about all routes that maximise value for you, our shareholders. I think we have had seven meetings with Palliser.”
Responding to the outcome of the vote, Palliser reaffirmed its commitment as long-term shareholders, with James Smith, founder and CIO stating: “It is never easy for a small shareholder to take on the likes of a corporate giant like Rio Tinto.
"However, we simply could not accept Rio Tinto’s anomalous and illogical findings that unification offers no advantages whatsoever, when almost every other DLC in the world has unlocked multiple significant benefits through a simplified structure. We co-filed our resolution to advocate for a truly unbiased and open review of the merits of unification.”
Smith added that having shone a “glaring light” on “governance failings and unsubstantiated analysis,” and having gained support from proxy advisors ISS and Glass Lewis for the structure review, Palliser hopes to work with a board that is more “willing to collaborate.”
Smith referred to the “similar experience” BHP, where “initial flawed arguments to protect an almost identical DLC structure – much like those now presented by Rio Tinto – ultimately gave way to a highly successful unification.”
