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Activist investor Palliser Capital has stepped up its campaign for Rio Tinto to leave its primary London stock exchange, demanding an independent review of whether the miner should follow rival BHP and unify its corporate structure in Australia.
Rio Tinto’s dual-listed structure, with a primary in London and a secondary in Sydney, was an “unmitigated failure” that stripped shareholders of $50 billion in value, Palliser said in a letter to management on Wednesday and seen by the Financial Times.
The UK-based hedge fund, which holds a stake worth about $250 million in Rio, first called for the company to leave London in May. The latest crusade is timed to coincide with Rio’s investor day in London.
Australian investment firm Blackwattle Investment Partners also backed the merger campaign, writing to the committee earlier this year to highlight the deep discount UK-listed Rio Tinto was trading at compared to its Australian Stock Exchange rival.
That valuation gap widened to 19 percent, from 15 percent in May, according to Blackwattle.
A successful campaign by Palliser, whose chief investment officer James Smith was at Elliott Management when he pushed for BHP to leave its dual corporate structure, would deprive the FTSE 100 of the world’s second-largest mining company.
Rio shares would continue to be traded in London under Palliser’s proposal via a secondary listing. BHP moved its primary listing to Sydney in 2022.
Rio has repeatedly said that consolidating its roster would cost “mid-single-digit billions of dollars” in taxes. The company also said it conducted an internal review and concluded such a move would destroy value.
Chief financial officer Peter Cunningham said earlier this year that Rio wanted to “rebalance” its listing – which is split 77/23 in London’s favor – and that conducting a UK share buyback could be an option to achieve this.
Rio is however limited in how much it can buy in London, as its shareholder Chinalco, the Chinese state-owned aluminum group, cannot hold more than 14.99 percent of Rio’s shares in London due to national interest restrictions imposed by the Australian government in 2008.
On the other hand, Jakob Stausholm, Rio Tinto’s chief executive, also said in October that the company was considering issuing shares in Australia after agreeing to buy the lithium developer Arcadia.
Asked by analysts why the company was paying cash for the acquisition, adding to its debt, Stausholm said he had “little” thought about issuing stock.
Palliser’s letter calls for a board of three to four independent directors, along with an outside shareholder representative, to review the change in corporate structure and listing. The fund also has targeted one of Japan’s largest property groups in recent weeks.
Ray David, partner at Blackwattle, said collapsing the share structure into higher-value ASX-listed shares “still makes sense for shareholders”, particularly in a consolidating market where companies can fund acquisitions using shares instead of paying cash.
Since adopting the dual listing structure, Rio Tinto has done all of its M&A transactions in cash rather than shares.
Rio Tinto said in a statement ahead of its investor day that it expects annual output to grow by about 3 percent a year until 2033. It gave shareholders an outline of expected increases in copper, lithium and iron ore production at key global projects over the next decade.
