November 10, 2009 - 4:50pm EST by
2009 2010
Price: 38.49 EPS $1.15 $1.95
Shares Out. (in M): 3,358 P/E 32.0x 19.0x
Market Cap (in $M): 199,532 P/FCF 66.0x 39.0x
Net Debt (in $M): 5,941 EBIT 15,900 20,500
TEV ($): 216,692 TEV/EBIT 14.0x 11.0x

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BHP Billiton Arb

BHP Billiton Ltd. (tickers BHP US, BHP AU, BHP LN) and BHP Billiton PLC (tickers BBL US, BLT LN, BIL SJ) trade at roughly a 20% spread. Currently, in US trading, BBL US is at $59.62 while BHP US is at $71.48.

BHP Billiton has a dual listing structure consisting of shares of BHP Billiton Limited and BHP Billiton PLC.  The idea is to go long shares of BHP Billiton PLC and short an equal number of shares of BHP Billiton Ltd. to capture the 20% spread between the two, and close the trade if the spread narrows to 5-10%.

The two underlying companies are have the same economic and voting rights (Company 20-F):

Equalisation of economic and voting rights: BHP Billiton Limited shareholders and BHP Billiton Plc shareholders have economic and voting interests in the combined BHP Billiton Group. The economic and voting interests represented by a share in one company relative to the economic and voting interests of a share in the other company is determined by reference to a ratio known as the 'Equalisation Ratio'. Presently, the economic and voting interests attached to each BHP Billiton Limited share and each BHP Billiton Plc share are the same, since the Equalisation Ratio is 1:1. The Equalisation Ratio would change if either BHP Billiton Limited or BHP Billiton Plc returned value to only its shareholders and no matching action were taken."

Historically the spread between the two securities has averaged 9.4%. The spread has tended to bottom around 0% and peak in the low 20s%. There have been days when the spread spiked to greater than 25%, but these have been short-lived anomalies usually lasting a day or two. 



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