Activist Palliser Capital pulls disaster Alcan deal card as investors vote on scrapping Rio Tinto dual-listing

An activist hedge fund pressuring the Rio Tinto board to abandon its London home has hearkened back to a disastrous $US38 billion acquisition of Alcan to drum up support from investors at the miner’s annual meeting. Shareholders at the Anglo-Australian company’s AGM cast their first round of votes on Thursday for a motion to review Rio’s dual-listing structure, but the outcome will not be revealed until after a second meeting in Perth next month. London-based hedge fund Palliser Capital has been spearheading the campaign and has reportedly received the support of proxy advisory firms like Glass Lewis and ISS. They argue Rio’s two-company structure makes it more complicated and expensive to do deals, and that investors outside of Australia are missing out on lucrative franking credits attached to Rio dividends. Rio disputes these claims. Palliser founder James Smith sought to win shareholder support at the meeting by reminding them Rio had paid $US38 billion in cash for Alcan in 2007. The timing and premium paid for the Canadian aluminium producer triggered a litany of writedowns amounting to a third of the asset’s value being scrapped. “When you can use scrip, you’re able to risk share,” Mr Smith said before shareholders at the meeting. “I need not go into the example of Alcan, but that would be a great case study where having used scrip would have been greatly to the benefit of company and all of our benefit as shareholders.” Chair Dominic Barton said if the miner could “go back in time” it would “love to have done that deal with scrip” — shares in the company — instead of cash. “But that’s not what the seller wanted to do,” he said. Mr Smith had reportedly been working at a firm named Elliott Management during its campaign to unify BHP’s dual-listing structure in 2022. Rio also made the case that a sole listing would trigger “expected tax costs in mid-single digit $US billions”. Director and former WA Treasurer Ben Wyatt told shareholders in London that it was appropriate for Australian stock to be kept separate as Rio PLC — the UK based company — became more globally diversified. “Between now 2030 the movement of EBITDA (earnings before interest, depreciation, tax and amortisation) on the Rio balance sheet is moving in the direction of PLC,” he said. “At the moment, say, 70 per cent is coming through Limited (Australia) primarily through iron ore. Between now and 2030, you’ll see that movement . . . move closer to 50:50.”