Hedge funds prompt debate over Rio Tinto's potential departure from London Stock Exchange
Mining Goliath Dismisses Activist Call to Ditch London Stock Exchange
After a close squeeze, Rio Tinto has withstood the latest pressure to axe its dual-listing status on the London Stock Exchange. The push for this change comes from Palliser Capital, an activist hedge fund, who believe unifying the company's shares in London and Australia could potentially unleash a $28 billion windfall for shareholders baring Rio Tinto's London-traded shares.
These London shares trade at a discount compared to their Australian counterparts, sparking Palliser's interest. With the backing of influential proxy advisers like Institutional Shareholder Services (ISS) and Glass Lewis, and more than 100 other shareholders (including Norway's sovereign wealth fund Norges Bank Investment Management), Palliser has argued that the dual-listing structure not only creates inefficiencies but also erodes shareholder value.
Rio Tinto's board, however, argues that the structure offers numerous benefits, including better capital markets access, more significant returns for shareholders, and efficient utilization of franking credits. They claim that abandoning the dual-listing would result in significant tax costs in the mid-single digit billions of US dollars.
In a recent vote, only 19.35% of Rio Tinto's shareholders backed a review of the company's dual-listed structure, falling just short of the City's 20% requirement for forcing a broader consultation with shareholders. Roughly 77% of Rio's investor base is linked to its London listing. But, the Australian-traded shares are currently enjoying a premium of about 25%, thanks primarily to tax benefits accessible to Australian shareholders.
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Rio Tinto's management team has conducted numerous reviews of the DLC structure since its inception, and in 2024, they completed a comprehensive review with advice from top-tier consultants. In response to a recent vote, Rio Tinto stated:
"The [dual-listed companies] structure delivers benefits in terms of capital markets access, shareholder returns, and efficient franking credits utilization. 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."
The board has also mentioned receiving widespread support from shareholders for their stance on the matter. They have emphasized the need to stay focused on delivering long-term, sustainable value for shareholders instead of diving into another review of their corporate structure. Shareholders expressed concern that this new review could steer the board away from their primary objective.
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- Despite the push from activist hedge funds like Palliser Capital, Rio Tinto has decided to maintain its dual-listing status on the London Stock Exchange, citing benefits such as improved capital markets access and efficient utilization of franking credits.
- The 2024 comprehensive review of the dual-listed company (DLC) structure by Rio Tinto's management team, with advice from top-tier consultants, highlighted the significant tax costs expected if the DLC structure were unified under Rio Tinto Limited, amounting to mid-single-digit billions of US dollars.
- In a recent vote, only a minority (19.35%) of Rio Tinto shareholders backed a review of the company's dual-listed structure, with the Australian-traded shares currently enjoying a premium of about 25% due to tax benefits accessible to Australian shareholders.
- In the upcoming year of 2025, the London Stock Exchange is anticipated to start the year booming, potentially providing a attractive platform for finance industry businesses and investors alike, as highlighted by the strong numbers that the exchange is expected to kick off the year with.
