Image: Elliott’s proposal included the demerger and separate listing of BHP Billiton’s US petroleum business on the New York Stock Exchange (NYSE).
BY REUBEN ADAMS
BHP Billiton shareholder Elliott Advisors has called on the Group to scrap the miner’s dual company structure, spin-off its oil assets and return more cash to investors.
Elliott, a hedge fund which holds about 4.1 per cent of the issued share capital of BHP, proposed that BHP merge its UK and Australian entities into a single Australian-headquartered and Australian tax resident listed company, while demerging and separately listing its US petroleum business on the New York Stock Exchange (NYSE).
The Value Unlock Plan could to provide BHP shareholders with an increase in value attributable to their shareholdings of up to 48.6 per cent for Limited shareholders and 51 per cent for PLC shareholders, according to Elliott.
“Despite being a leading global resources company with a portfolio of best-in-class large-scale diversified mining assets, in recent years BHP as an investment has underperformed a portfolio of comparable mineral and petroleum companies,” the Value Unlock Plan stated.
“Unfortunately, despite the progressive and successful demerger of South32 in May 2015, BHP’s management still cannot deliver optimal shareholder value without (i) resolving the shareholder value inefficiencies caused by its dual-listed company structure; (ii) monetizing the intrinsic value of BHP’s US petroleum business, the value of which is being obscured by its continued inclusion within the group; and (iii) enhancing capital management to an optimal level.”
In response, BHP stated that after review “we have concluded that the costs and associated risks of Elliott’s proposal would significantly outweigh any potential benefits”.
“Elliott proposes that the Group replace the DLC with a single United Kingdom domiciled company, with a primary listing in London and with Chess Depository Instruments quoted in Australia on the Australian Securities Exchange,” BHP stated.
“Although we keep the DLC structure under review, we have not yet identified sufficient benefits to outweigh the significant costs which would be incurred in unifying the DLC.”
The Group also stated that Elliott’s Petroleum business demerger proposal was based on a view that investors would ascribe a higher value for these assets in a separately listed entity.
“BHP Billiton has disclosed the information the market needs to fully value the Petroleum business. BHP Billiton’s approach is to optimise the long term value of the Petroleum business through operating excellence.”
Under BHP’s updated dividend policy shareholders already received a minimum 50 per cent of underlying earnings as a dividend each period.
“We have introduced a rigorous capital allocation framework, which balances value creation, cash returns to shareholders and through the cycle balance sheet strength in a transparent and consistent manner,” BHP stated.
“In doing so, we have laid the foundations for the Group to substantially grow the base value of its operations. Elliott’s proposal would put this at risk.”
The Board of BHP Billiton stated that it would consider further its detailed response to the proposal and make a further announcement in due course.
