The Rising Influence of Rising Affluence

[DewDiligence]

An astonishing case of stock-market inefficiency:

BHP and BBL have identical economic value per US-traded ADR because they are two sides of the same coin. The “coin” in this case is BHP Billiton, the world’s largest mining company, which has a “dual listed” corporate structure in which two parent companies have contractually agreed to operate jointly and distribute dividends as though they were one legal entity. (This is the same structure Royal Dutch Shell had until a few years ago.)

For shareholders who reside in either Australia or the UK (the respective domiciles of the two parent companies), there are differences between BHP and BBL in the withholding and taxation of dividends; however, for shareholders in all other countries—including the US—there is no economic distinction between owning a share of BHP and a share of BBL.

Nevertheless, shares of BBL currently trade at a 16% discount to shares of BHP on the NYSE!