No. of Recommendations: 4
I expect BN to spin out their 75% interest in BAM. Please someone correct me if this is not accurate.
In a sense you could say that BAM is being “spun out”. But BN are purchasing all the newly issued shares back that they they are spinning out. The result is that BN own the same 73% of BAM that they own right now, but instead of owning it privately they will own the public subsidiary.
There is no economic effect as even the treatment of dividends received by BN from BAM are taxed in the same way.
This of course requires BAM to issue an enormous number of public shares to represent this 73%. But they will all be taken up by BN instantly, so there is no market pressure whatsoever.
The purpose is simply structural elegance. They will then own *purely* public shares of all the main subs, BBU, BIP, BEP and BAM. But more importantly rhe BAM public entity itself will represent the whole business rather than quarter share of it, which indeed is a little confusing when looking at the market cap for new investors.
The odd one out is their commercial property business as they are for now keeping that privately owned. That was, conversely, formerly public and then made private during Covid, as they felt the market was pricing it too pessimistically at the time.
They are definitely on the hyperactive side when it comes to switching ownership between private and public. When a public sub trades too cheaply then it can actually be a positive phenomenon because the shares can be repurchased for a bargain.
Like many BN moves, it is best to view this as benign and an small incremental optimisation, rather than anything important. They like doing these small “hairdressers” moves, and it bothers some investors as overly fiddly, but I absolutely don’t mind. Just view is as a small tweak.
Another example of such a small move is that you can buy shares of BNT instead of BN which are slightly better. In no way inferior, marginally superior and convertible back to BN. You can convert BNT back to BN any time you want, but in the meantime the dividend is paid without withholding tax taken out if you are a non-US investor. It is classed as a capital return rather than a dividend. For most residencies, say Australia, you pay the same tax anyway (as you can no longer apply the 25% withholding tax as an offset) - BUT if you live in country with dividend tax lower than the 25% withholding rate, then it is better to own BNT than BN. I live in Monaco, so tax is something old fashioned and quaint that I ignore, and any papers relating to tax posted to me I instantly bin, so this is how I own BN - through BNT. That saves me 25% on the dividend - an extra return for free of about 0.15% each year given that the dividend yield is 0.6%. If I owned BN I wouldn’t get that extra 0.15% pa. So that is small - but another great example of an “incremental optimisation”, Brookfield-style.
- Manlobbi
