BHP Billiton Limited (ADR) (NYSE:BHP) has been on a rough road since the breakup with South32.
The mining company decided to venture out on its own with a portfolio of different materials and trade without South32. The decision was followed by catastrophic repercussions as the company lost about $8.7 billion which is an equivalent of 10.9 billion AUD. The company’s double listed shares dropped by more than 7% in the Australian market and 4% in London.
In total, the company lost AUD 10.3 billion in value. Some critics say the whole event might have been planned since the same amount of value was placed on South32 just like when South32 was still in the tied to BHP Billiton. The mining company’s shares had also not performed quite as per expectations.
BHP had made a vow to maintain its dividends and the company also anticipated support from investors after the separation. For some time, BHP’s shares had been performing better than those of the competitors, especially with the anticipation of the split.
BHP will have to do something about the shareholders who own shares in South32.In the meantime, the company has other issues to worry about. There might be charged for shelling out fees worth $740 million before attaining clear value. So far, the two companies must look for means towards value creation. The split means South32 is open for other acquiring companies to consider. However, it might be a good opportunity for both companies to grow independently.
South32 now has that independent growth opportunity. To succeed, the company must consider slashing its spending while at the same time uphold a free cash flow. This mission seems like a tall order considering the fact that analysts forecasts suggest that the company will experience low production in the coming period.
BHP Billiton Limited (ADR)(NYSE:BHP), on the other hand, has been left with limited resources following the loss. The company must now watch over its spending to make sure those limited resources are stretched enough to cater for its spending.
