BHP Billiton Merger

BHP Limited
4 May 2001

Release Time     IMMEDIATE

Date          4 May 2001

Number          42/01



                      BHP RESPONDS TO ASIC REQUESTS FOR

                   ADDITIONAL INFORMATION FOR SHAREHOLDERS

BHP Limited today responded to Australian Securities and Investment Commission
(ASIC) requests for additional information in connection with the proposed
merger of BHP with Billiton Plc.. The additional information is included in a
letter to BHP shareholders to update them on merger progress (attached).



BHP Chairman Don Argus said: 'We welcome the input of ASIC in reviewing the
proposed merger transaction. One of the areas of information about which some
shareholders have enquired has been the commodity and currency assumptions
used in the merger valuation analysis.



'The merger with Billiton is a ground-breaking transaction. It transcends
numerous international borders and regulatory jurisdictions. Its
implementation requires a number of modifications to the law by ASIC.



'Discussions with ASIC have been underway for several weeks. The additional
information, particularly the commodity and currency assumptions, provides
further background to the Directors' recommendations to our shareholders.'



Further information can be found on our internet site: http://www.bhp.com





Contact:

MEDIA RELATIONS

Mandy Frostick, Manager Media Relations

Ph: 61 3 9609 4157 Mob: [phone]



INVESTOR RELATIONS

Robert Porter, Vice President Investor Relations

Ph: 61 3 9609 3540 Mob: [phone]






                                      B







                                                      Letter from the Chairman

                                                                    4 May 2001



                      BHP BILLITON MERGER ANNOUNCEMENTS



Dear Shareholder,

You will by now have received the Explanatory Memorandum for the proposed
merger of BHP Ltd and Billiton Plc ('DLC Merger'), including the notice of the
BHP Extraordinary General Meeting to be held on 18 May 2001 at the Concert
Hall, 100 St Kilda Road, Melbourne, Australia.

With just over two weeks to the shareholder meeting, I thought it appropriate
to update you on the DLC Merger process, and to respond to some common
questions.

 1. Does your vote matter?

    The proposed merger is a very important step in your Company's history and
    we urge you to vote. Your Directors unanimously recommend you vote at that
    meeting in favour of the resolutions proposed. As set out in the
    Explanatory Memorandum you can vote in one of four ways:

    -     in person;

    -     by corporate representative;

    -     by attorney; or

    -     by proxy.

    Proxy forms must be received at the BHP Share Department no later than
    9.30am on 16 May, 2001 (Melbourne time). If you have not already done so,
    we urge you to send in your proxies as soon as possible if you are not
    planning to attend the meeting in person.

 2. What is happening to ensure a smooth implementation of the merger?

    Since the Explanatory Memorandum was sent to you, BHP and Billiton senior
    management have been busy presenting the DLC Merger to shareholders and
    investors in Australia and overseas. Pending shareholder and regulatory
    approvals, senior management are planning for the integration of the two
    groups. They have visited BHP and Billiton offices and operations around
    the world and I am pleased to be able to report that, as they continue to
    work and plan, the BHP team's enthusiasm for the merger has only
    increased.

 3. Key elements of the DLC structure

    BHP and Billiton will retain their separate corporate identities and will
    also maintain their separate stock exchange listings. BHP shareholders
    will continue to hold their shares in BHP. Billiton shareholders will
    continue to hold their shares in Billiton.

    The implementation of the DLC merger does not involve any transfer of
    assets between the BHP and Billiton Groups.

    BHP and Billiton will operate and be managed as if they were a single
    unified entity. As BHP and Billiton will remain separate corporate
    entities, they will each continue to have a Board of Directors. The Boards
    and senior executive management of each company will be comprised of the
    same persons.

 4. Your Directors' Recommendations

    Your Directors unanimously recommend that you vote in favour of the
    resolutions being put before the Extraordinary General Meeting. Your
    Directors consider that they are in the best position to evaluate the
    future impact of the DLC Merger on BHP shareholders and take full
    responsibility for their recommendation.

    Your Directors' have set out in clear and unambiguous terms their
    recommendations in respect to the DLC Merger and their reasoning in
    reaching those recommendations in Section 1 of the Explanatory Memorandum,
    under the heading 'Issues For You To Consider'. These recommendations were
    made after extensive review, analysis and consideration. It is appropriate
    to reiterate (in paragraphs 5 and 6 below) some of the key factors that
    underpin those recommendations.

 5. Is the DLC merger in the best interests of BHP shareholders as a whole?

    There is no doubt that, from the viewpoint of your Directors, the
    principal driver for this merger is to create shareholder value by
    achieving the key merger benefits. These benefits, as set out in Section
    1.2 of the Explanatory Memorandum, include enhanced access to organic
    growth opportunities, improved diversification and resilience to risk,
    increased financial strength, as well as better access to world capital
    markets and enhanced scale. Your Directors remain firmly of the opinion
    set out in Section 1.1(f) of the Explanatory Memorandum that the DLC
    Merger is in the best interests of BHP shareholders as a whole.

    In reaching this conclusion, as set out in Section 1 of the Explanatory
    Memorandum, your Directors considered each of the advantages and
    disadvantages of the merger and the future alternatives available for BHP.
    They have considered the future of BHP in the context of the global
    minerals industry and concluded that, to enhance sustainable and future
    financial performance, BHP required both greater depth in its portfolio of
    growth opportunities, and diversification into new product areas and
    geographic regions. Your Directors believe that a premier global resources
    company will be better positioned to deliver strong sustainable returns
    for all of its shareholders if it has:

    -     the capability and opportunity to develop large scale, long lead
    time projects in a broad range of acceptable technical and political
    environments including those that are more difficult, without any one or
    two projects dominating the asset portfolio;

    -     sufficient depth to its growth project portfolio to allow
    flexibility in allocation of capital to projects and production capacity
    to maximise the likelihood that capital spent will deliver returns in
    excess of the cost of such capital; and

    -     the financial strength, size, and portfolio diversity to manage the
    risk and returns associated with future large scale developments and
    future economic and political change, and access to global capital markets
    at the most favourable rates.

    This DLC Merger offers BHP and BHP shareholders strong enhancement of all
    three factors, with consequent implications for increased future
    shareholder value.

    In your Directors' view, the enhanced growth portfolio and risk
    diversification offered by this DLC Merger would take considerable time to
    achieve by other means, with your Company incurring additional costs and
    risks. Significantly, your Directors do not consider that these benefits
    could realistically be achieved by other means in any meaningful
    time-frame.

    Your Directors, as a result of their analysis, believe that the DLC Merger
    will be earnings per share ('EPS') accretive for BHP shareholders,
    beginning in the financial year ending June 30, 2002.

 6. Are the merger terms fair and reasonable?

    In Section 1.1(e) of the Explanatory Memorandum your Directors set out
    their opinion that the merger terms are fair and reasonable, and the
    background as to how they arrived at that conclusion. They stated 'the
    assessed likely value conferred by a BHP share in BHP Billiton will depend
    in part on the current value of BHP and Billiton assets and liabilities.
    However, it is expected that the assessed value will be positively
    impacted by a number of other factors, including synergies expected to be
    realised by BHP Billiton and, from an investor's perspective, the expected
    enhanced profile of BHP Billiton in the context of the global minerals
    industry, reshaped by the ongoing consolidation process'.



    As explained in that document and in Attachment 1 to this letter, the
    primary approach to the value analysis adopted by your Directors was to
    examine the net present values of the key businesses, assets and
    liabilities of BHP and of BHP Billiton respectively, in order to determine
    the impact of the merger terms on the likely value of a BHP share. The key
    economic assumptions adopted by your Directors for use in the value
    analysis are also set out in Attachment 1 (although it is recognised that
    different assumptions may be used by others). That analysis concluded that
    the likely value conferred by a BHP share in BHP Billiton, including
    synergies, would be approximately 5% higher than the value of that same
    BHP share if the status quo were maintained.

    In addition, and of potentially greater significance, your Directors
    believe that the enhanced profile of BHP Billiton, including enhanced
    growth, risk diversification, financial strength and access to
    international capital markets, as discussed in paragraph 5 above, should
    lead to a positive relative re-rating of BHP's shares compared to the
    rating such shares would enjoy in the event that the status quo was
    maintained. Your Directors consider that, without this merger, BHP would
    see its competitive position erode as others in the resources industry
    pro-actively move toward consolidation. While it is not possible to
    quantify reliably what the extent of that re-rating may be, or its timing,
    your Directors regard this as an additional value enhancing benefit that
    may accrue as a result of the DLC Merger.

 7. How important are the synergy benefits?

    The Directors of BHP and Billiton have identified expected merger synergy
    benefits through, among other things, efficiencies in procurement, shared
    business services, market services, ocean freight, and the elimination of
    duplicated overheads. These benefits are described in more detail in
    Section 3.2 of the Explanatory Memorandum. They are currently expected to
    amount to approximately US$270 million before tax in the Financial Year
    ending 30 June 2003, with further benefits expected to be realised
    thereafter.

    Synergies and cost savings are not the principal driver for this merger.
    As stated in paragraph 5 above, the principal driver is to create
    shareholder value by achieving the key merger benefits set out in Section
    1.2 of the Explanatory Memorandum.

    US$270 million in expected annual merger synergy benefits, in the context
    of BHP Billiton pro-forma unaudited Profit and Loss Information for the
    combined group for the period ended 30 June 2000, as set out in the
    Section 4 of the Explanatory Memorandum, represents less than 2% of the
    'Related Operating Costs'.

    Your Directors have assumed that annual merger synergy benefits in excess
    of US$270 million will be realised in the years following June 30, 2003.
    However, even if no more than the US$270 million were achieved for the
    financial year ending 30 June 2003, and for each subsequent year in the 20
    year valuation period, referred to in Attachment 1, your Directors
    consider the likely value conferred by a BHP share in BHP Billiton, in
    these circumstances (including synergies and before any re-rating) would
    still be approximately 4% higher than the value of that same BHP share if
    the status quo were maintained.
 
 8. What progress has been made toward implementation of the DLC Merger?

    Billiton has printed and posted its Circular to Shareholders and expects
    to hold its shareholder meeting to vote on the DLC Resolutions required to
    be adopted by Billiton Plc on Tuesday 15 May, 2001, three days prior to
    BHP's meeting.

    The DLC Merger is subject to regulatory approvals as set out in Section
    5.3(b) of the Explanatory Memorandum. At this stage good progress has been
    made toward securing the required approvals. The key approvals which have
    already been obtained are:

    -     approval of the Australian Stock Exchange of the amendments proposed
    to BHP's constitution;

    -     a private binding ruling from the Australian Taxation Office that
    Billiton will not be a resident of Australia for Australian tax purposes;
    and

    -     indication from the UK Inland Revenue that, under the DLC structure
    as it is proposed to operate, (I) Billiton will remain UK resident, on the
    basis of the Australian Taxation Office ruling noted above, and (ii) BHP
    will not become a UK resident, for UK tax purposes ;

    Applications for approval are progressing with the European Commission and
    the Foreign Investment Review Board respectively. Submissions for the
    necessary relief have also been filed with the Australian Securities and
    Investments Commission. The companies are in discussions with these
    regulators and your Directors consider that, subject to shareholder and
    regulatory approval, implementation of the DLC Merger and the BHP Bonus
    issue could occur as early as the middle of this calendar year.
 
 9. How have the shares of BHP performed since Announcement?

    The chart - viewed via BHP's web site: 'http://www.bhp.com/newscentre/
    pressarchive/Docs/305BHP4201.pdf' shows how BHP shares have recently
    traded. Your Board is very pleased with this performance which we consider
    underlines investment markets support for the strength and prospects of
    the combined BHP Billiton.

10. What happens to your dividends and when will you be eligible for Bonus
    Shares?

    Shareholders will continue to receive dividends from the company in which
    they currently hold their shares. However, BHP shareholders and Billiton
    shareholders will have an economic interest in the Combined Group and an
    appropriate policy for dividend payments (including the timing of
    payments) will be established which reflects earnings growth, financial
    conditions and prospects for the Combined Group. Each Company will pay an
    equivalent cash amount on each share.

    Initially, dividends from BHP Billiton will be consistent with the
    dividend level currently paid by BHP.

    For BHP shareholders:

    -     cash dividends will continue to be paid in the currency in which
    they are currently paid; and

    -     dividends will be franked to the extent that franking credits are
    available.

    As set out above, subject to both shareholder and regulatory approvals,
    the BHP Bonus issue could occur as early as the middle of this calendar
    year.
11. Will the headquarters of BHP Billiton remain in Melbourne?

    BHP will remain an Australian public company with a primary listing on the
    ASX. The Combined Group will have its headquarters in Melbourne, Australia
    with a significant corporate management centre in London.
12. The Future BHP

Today, BHP's business and shareholder base is essentially global in nature,
with a core Australian representation. Your Directors are proud of BHP's
heritage and proud of its achievements to date but believe that this merger is
absolutely vital in its next phase of development into a global resources
company.

BHP Billiton will be equipped with the assets, growth opportunities,
international capital markets recognition, scale and global reach necessary to
become an investment of choice for investors around the world. Standing still
is not an option and your Directors look forward to the future with the
greatest confidence.

All BHP Directors intend to vote in favour of the resolutions and unanimously
recommend that BHP shareholders do the same.





Don Argus

Chairman



Attachment 1 : Valuation Analysis Approach and Economic Assumptions

In reaching their conclusion in respect to the fairness and reasonableness of
the merger terms, your Directors adopted a discounted cash flow valuation
technique. This involves the calculation of a net present value of future cash
flows for each key asset or business of BHP and BHP Billiton by discounting
the expected unlevered future cash flows, using appropriate discount rates,
and deducting the associated debt to derive an equity value. Key aspects are
as follows;


    -     cash flow streams are projected out 20 years or, in the case of
    mining and oil and gas assets with reserve lives of less than 20 years, to
    the end of their projected operating lives;

    -     projected cash flows are discounted to a present value at June 30,
    2001 using appropriate discount rates, which are described below. This
    provides an estimate of the total enterprise value for the assets so
    valued;

    -     for operations without reserve limitations (e.g. aluminium smelters)
    or assets where the expected life might exceed 20 years no assessment of
    the residual value of the asset remaining at the end of the forecast
    period is made, given the inherent uncertainty of the underlying cash
    flows and economic assumptions that might apply beyond this initial 20
    year period;

    -     net debt for BHP and BHP Billiton has been estimated at June 30,
    2001. This is deducted from the aggregate enterprise value in order to
    arrive at the relevant equity value;

    -     the value of synergy benefits and corporate costs are estimated
    using a similar approach. The estimated cashflows are assumed to be
    realised each year to the end of the 20 year period, then discounted to a
    present value at June 30, 2001 using an appropriate discount rate.

Discounted cash flow analysis is appropriate for assets such as mines in that
it captures the effect of the depletion of reserves and the significant
variations in cash flow which occur over the life of a resource. It is the
primary method of valuation utilised in valuations for the resources industry.
The approach outlined above is, in your Directors' view, consistent with
generally accepted industry practice.

In respect of discount rates, the approach adopted for the purpose of this
value analysis is to calculate a Weighted Average Cost of Capital ('WACC') for
BHP's businesses. This is in turn based on the cost of debt and equity
capital, the assumed capital structure of the entity under analysis and the
assessed associated risks. Generally, this WACC has also been applied to BHP
Billiton assets or businesses deemed to bear similar risks. For cash flows
generated by riskier assets (such as those in developing nations) a spread has
been added to the base WACC. The base WACC adopted is 9% nominal, with a
maximum discount rate of 12% nominal for riskier assets.

Sensitivity analysis using +/- 0.5% of the WACC did not give rise to any
material difference in the relativity of the assessed value of a BHP share
maintaining status quo compared to the value conferred by the same BHP share
in BHP Billiton.

Details of the key economic assumptions adopted by Directors for the purpose
of the value analysis are set out below. The key commodities of the combined
group are set out in Section 3.1 of the Explanatory Memorandum.

Some of the assumptions underlying this valuation analysis (such as future
commodity prices) relate to matters which are speculative and upon which
opinions may vary. Different, equally tenable assumptions may be made by
others which would produce different results. Each of the matters referred to
in this letter which relies upon assumptions regarding the future, while
supporting the views expressed by your Directors in the Explanatory
Memorandum, is subject to risks and uncertainties which could cause actual
outcomes to differ from those implied by the Explanatory Memorandum and by
this letter. In consequence, undue reliance should not be placed on those
assumptions about the future.






Key economic and commodity price assumptions used in
the DCF value analysis
                                                      Long term   Nominal
                                                                  prices (6)
                                    Units       Notes price -       2002   2003
                                                      real (4)
Exchange rates
A$/US$                                           (1)       0.66     0.57   0.62
US$/Rand                                         (1)       6.85     7.23   7.23
Exchange traded commodities
Aluminium                           US$/pound    (1)       0.70     0.75   0.78
Copper                              US$/pound    (1)       0.89     0.93   0.98
Nickel                              US$/pound    (1)       3.00     2.99   3.36
Lead                                US$/pound    (1)       0.25     0.22   0.25
Zinc                                US$/pound    (1)       0.52     0.50   0.54
Silver                              US$/ounce    (1)       4.50     4.98   5.14
Oil - WTI                           US$/barrel   (1)       18.5     22.1   19.3
Non-exchange traded commodities
Iron ore - lump                     US cents/    (1)       36.5     38.1   37.9
                                    ltu (5)
Iron ore - fines                    US cents/    (1)       28.5     28.8   28.5
                                    ltu (5)
Coal - Queensland                   US$/tonne    (3)       38.5     34.7   36.4
Coal - South African export price   US$/tonne    (3)       26.8     29.5   29.5
Ferro manganese - high carbon       US$/tonne    (2)        337      384    385
Ferro chrome                        US$/pound    (2)       0.27     0.27   0.27
TiO2 slag - chloride route          US$/tonne    (3)        273      303    308

NOTES:
1. UBS Warburg Equities Research forecasts (March 2001)
2. BHP forecasts
3. Composite forecasts - UBS Warburg and BHP
4. Real 2000 (December) dollars
5. US cents per long tonne unit
6. Year end 30 June