By Sonali Paul MELBOURNE (Reuters) - BHP Billiton (AX:BHP) (L:BLT) is set to unwind what's left of its 2001 merger with South Africa's Billiton on Tuesday, bundling the remaining assets into a new company to be handed to shareholders so it can focus on its core businesses.
The world's biggest miner is expected to announce a spin-off of its unwanted smaller assets that may be worth between $12 billion (7 billion pounds) and $23 billion, depending on what is included, when it reports its annual results on Tuesday.
The 2001 mega-merger united BHP's copper, coal, iron ore and petroleum businesses with London-listed Billiton's aluminium, energy coal, manganese, nickel and titanium operations, in a bid to gain scale and win over international investors.
"At that point in time there was this focus on getting bigger and more important. There was a strategic element to it - becoming more diverse, more international," said Darko Kuzmanovic, a portfolio manager at Caledonia Investments.
"In hindsight, those (Billiton) assets just didn't have either the scale to be more important in the portfolio, or in those particular industries - the commodity prices were under pressure."
BHP Billiton is expected to report a 22 percent rise in annual attributable profit to $14.1 billion on Tuesday, according to Thomson Reuters StarMine's SmartEstimate, with investors hoping also for a share buyback.
Following two years of austerity as commodity prices cooled, BHP could be in a position to return more than $8 billion to shareholders over the next two years, UBS estimated.
BHP said on Friday a company split was under discussion. It gave no details, but has previously flagged it wants to cast off its aluminium, manganese and nickel assets to focus on its large, long-life, highly profitable iron ore, copper, coal and petroleum businesses.
Any split would make only a dent in its $189 billion market capitalisation, with the three main businesses likely to be hived off making up less than 1 percent of its earnings in the year to June, 2013.
The miner has already sold off the Yabulu nickel refinery that came from Billiton to Australian tycoon Clive Palmer after writing down the value by $675 million, and sold its Billiton-inherited stake in the Richards Bay Minerals titanium business to its co-owner Rio Tinto last year.
The remaining aluminium and manganese businesses came from Billiton, while the Nickel West business is a legacy of its 2005 takeover of WMC Resources.
BUYING INTEREST?
The assets are being spun off at the bottom of the price cycle, but would be a big bite at $12 billion for any potential buyer.
Private equity firm X2 Resources, headed by former Xstrata chief Mick Davis, may be the best potential suitor as Davis nurtured most of those assets in Billiton before he helped engineer its merger with BHP in 2001.
However, he has probably reviewed some of the assets already, as BHP invited bids for its Nickel West arm and appears not to have received a high enough offer.
Australian investors have plenty of experience with spin-offs across a range of sectors, such as building group CSR's spin off of Rinker Group and Western Mining Corp's break-up into WMC Resources and Alumina Ltd (AX:AWC), which were bonanzas for shareholders as the broken up companies became takeover targets.
BHP itself spun off its steel businesses more than a decade ago as BlueScope Steel (AX:BSL) and OneSteel, now Arrium (AX:ARI). Investors who held on to them until 2007 made a mint, but those still holding those shares are in the red.
Investors declined to say whether they would hold on to the new company without seeing details on what assets and debt were offloaded into it and what valuation BHP put on it ahead of listing it on the Australian exchange.
The gains for shareholders from the latest spin-off would come not just from the new company. Citi analysts estimated by getting rid of its weaker assets, including energy coal, BHP could boost its profit margins by 5 to 8 percentage points into the 50-58 percent range over the next six years.
(Editing by Richard Pullin)