The Financial Times has reported that UK based activist investor, Palliser Capital, has stated Rio Tinto should consider relocating its primary listing from the London stock market to Australia, which could potentially increase the miner’s share price by “nearly 40%”.
Palliser Capital, managing approximately US$850M in assets, highlighted that Rio Tinto’s dual corporate structure complicates the pursuit of all-stock takeovers for the world’s second-largest miner. The Financial Times reported that the London-listed entity of Rio Tinto is currently at a US$27B discount compared to its Australian counterpart.
Merging the entities and establishing the main listing in Sydney, similar to what BHP (ASX: BHP) did two years ago, would result in the FTSE 100 losing another major company. The FTSE 100 is an index tracking the 100 companies listed on the London Stock Exchange with the highest market capitalization.
In April, Shell announced it was considering leaving the LSE due to European investor apathy or even hostility towards fossil fuels.
With a market capitalization of ~£96B (US$123B), Rio Tinto is the ninth largest company on the FTSE 100.
James Smith, Palliser’s chief investment officer, stated at the Sohn Hong Kong investment conference that the “extremely clunky and outdated dual-listed corporate structure” is the root cause of Rio Tinto’s undervaluation. He estimated an upside of “nearly 40%” in Rio Tinto’s shares if the structure was simplified.
Smith, who founded Palliser in early 2021 after leaving Elliott Investment Management, led a successful campaign against BHP, urging the company to increase share buybacks and eliminate its Anglo-Australian dual listing in 2017.
The Financial Times reporter states that nearly 77% of Rio Tinto’s share capital is held by investors in the company’s UK-based entity, despite a significant portion of its profits being generated in Australia. Any restructuring would require the approval of both UK-based (Plc) and Australia-based (Ltd) shareholders.
This situation contrasts with BHP, which had a stronger focus on its Australian-based entity. Rio Tinto has maintained a dual listing since December 1995 and has indicated that dismantling this structure is not a priority. During the February results call, CEO Jakob Stausholm described it as “the least important issue in my opinion,” when questioned about the potential for dismantling the dual-listed company (DLC) structure.
Stausholm acknowledged there were “marginal benefits” to such a move, including streamlining duplicate head office functions and eliminating dual annual meetings and dual sets of primary listing fees.
