The Rio Tinto shareholder vote on its London listing is coming up! Here’s what you need to know

A Rio Tinto shareholder vote is coming on whether it should scrap its London listing and just be listed on the ASX. British investors will vote in early April and Australian investors a month later (on April 3 and May 1 respectively). How did this come about, and how should you vote?

How we got to this point

Rio Tinto, the world’s second largest miner, has been dual listed since December 1995 in Sydney and London. London is its primary listing with 77.1% of total shares being there and the balance in Australia. Technically they are separate listed companies with their own shareholder registers, but they operate as a single economic enterprise.

There have been calls many times before, but this time the calls have been enough to get to a shareholder vote. It helps that peer BHP axed its dual listed structure over 3 years ago.

But for several months, Rio Tinto has been heckled by activist investor Palliser for several months to do this. It paid Grant Thornton to evaluate the benefits of the unification and is using the data it found the dual-listed structure cost investors $50bn in value.

Why Pallinger thinks Rio Tinto should drop its dual listing

In particular, the differences in share price between the two companies reduces the flexibility to offer shares as consideration for acquisitions, whereas many peers have greater flexibility and take advantage (that is to say, they use scrip – the report asserts the average mix is 85% shares). It pointed to BHP now offering shares for acquisitions, including its offer for AngloAmerican last year.

One issue would be the short-term volatility if Rio Tinto investors opted to sell shares rather than stay invested in a company listed in Australia. But Grant Thornton asserted that the capital markets ‘can match or exceed the flow back in conjunction with the potential unification’, pointing to Australia’s superannuation assets, foreign investment growth from $1tn to $4.7tn in the last 20 years and how metals and mining companies raised US$27.8bn this decade compared to US$827m in the UK.

On top of all this, franking credits would be useful for investors able to take advantage.

To make a long story short, hear the words of Palliser’s CIO James Smith,’ Our resolution is focused on creating an independent, fair and transparent pathway to assessing the benefits of unification for all shareholders. Based on the overwhelming commercial logic behind no less than twelve precedent unifications, including key peer BHP, we believe that unification would not only allow Rio Tinto to achieve a considerable increase in valuation, but also optimise its capital allocation choices and unlock significant corporate governance improvements’.

If you believe him and not Rio Tinto’s management, you’d be better off voting yes.

The no case

The company’s own review – which management has alluded to but never disclosed publicly other than through management’s own statements from time to time – found that the dual listing offers benefits and costs could come from being dual-listed, one of which could be a potential decline in shares.

Proxy firm Glass Lewis believes there would be a one-off $715m cost and a higher annual tax bill, although it is opting to back the deal believing the benefits outweigh the costs.

WaveStone Capital is one money manager opposed to the deal, with principal Raaz Bhuyan quoted as saying in the AFR that the move would be ‘great for bankers…but there is nothing in it for investors’. No doubt, it would be good for the bankers – they’d get a fee of 5-6% of the proceeds. And it might be tough for London investors who’ll have to deal with the complexities of being invested in a company on a foreign exchange. But for local investors? He was not quoted as stating any negatives, but rather there was ‘nothing in it’ for them.

The Rio Tinto shareholder vote won’t just be watched by Rio’s own investors

Just on a side note, it would be a blow to London that is struggling with an exodus of corporations. BHP is bad enough, but Glencore is openly considering moving to. And a total of 88 companies delisted or moved their primary listing in 2024 – the highest number in 15 years.

Conclusion

Plenty will watch the Rio Tinto shareholder vote with keen interest. It may not have much of an impact on investors who are already invested in the Australian shares. But head office and London investors will be impacted for the reasons outlined above.

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