One man who couldn’t help but feel more than a little vindicated following BHP’s long awaiting move on Rio is former Billiton boss, Brian Gilbertson. Gilbertson was sacked by BHP Chairman, Don Argus, in early 2003 after going behind the board’s back and approaching Rio regarding a merger.
Back then, it would have cost BHP approximately AUD$55 billion to purchase Rio. Today, the purchase will probably end up costing BHP around US$170 billion and is being overseen by Gilbertson’s former protégé, Marius Kloppers.
As noted by the SMH, the biggest problem with Gilbertson’s plan (apart from the fact that he forgot to get board approval first) was that the proposed deal is believed to have involved relocating the merged entity’s head office moving to London, which would have been a political nightmare in Australia. But while he may have been politically naïve, Gilbertson’s views of the economics of the deal were superb, and would have seen BHP collect a swathe of prime assets shortly before an extended commodity boom.
Ironically, Argus is now keenly supporting the deal at a far more expensive price.
Even more ironic is the fact that Gilbertson was sacked but Argus remained, even after Gilbertson magnificently out-negotiated his Australian merger partner when BHP and Billiton merged back in 2001. As Alan Kohler noted, and later Crikey re-calculated, it is estimated that Gilbertson’s Billiton out-did Argus’ BHP to the tune of $40 billion when the companies “merged”. Apparently, at BHP, to the loser go the spoils.
Gilbertson originally rose to prominence as executive chairman of Gencor in 1992 (he began working at Gencor in 1988 as an executive director in the company’s coal division). Soon after, Gilbertson’s Gencor acquired Billiton from Royal Dutch Shell and effectively completed a back-door listing through Billiton onto the London Stock Exchange. In the years to come, Billiton invested in a number of mining assets, including aluminium businesses in South Africa and Mozambique (which Koppers helped establish). Gilbertson’s Billiton then “merged” with BHP, in what was effectively a reverse takeover – Billiton shareholders reaped a generous premium while Gilbertson become CEO-elect.
Gilbertson’s keen eye and negotiating skills were reaffirmed earlier this year when the South African bamboozled another Australia board, this time, convincing Consolidated Minerals to merge with his firm Pallinghurst Investment Fund. Gilbertson was able to gain the board’s approval to acquire 60 percent of ConsMin for the bargain price $2.30 per share.
Only after small shareholders revolted, and another bidder entered the fray moments before the deal was set to be approved, did Gilbertson raise his bid. Currently ConsMin is priced at $4.63 per share – more than double what Gilbertson negotiated only months earlier.
He may not be universally liked, (former Billiton employees used to note that “the Ego has landed” whenever Gilbertson’s helicopter returned to Billiton head office) but there seem to be few CEOs who can match Gilbertson’s record for spotting undervalued assets.
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Disclosure: The writer owns BHP shares and has an economic interest in Rio and ConsMin