BHP Billiton activist's changes need to pass Australian 'national interest test'

Apr 13, 2017, 01:31
BHP Billiton activist's changes need to pass Australian 'national interest test'

BHP said it's been in talks with the hedge fund for many months, and the costs and risks associated with the proposals outweigh the benefits.

".[I] ts intrinsic value is being obscured by bundling it with BHP's other assets", Elliott said.

"We have had dialogue with Elliott over many months, consistent with our commitment to shareholder engagement", BHP says.

But BHP Billiton said the plan's cost to boost shareholder value would be too high to have any real benefit.

That would create a single Australian-headquartered firm that would retain BHP's current stock market listings and keep them in Sydney's and London's benchmark share price indices, according to Elliott.

Since the formation of the dual listing in 2001, BHP says it has returned to shareholders $US23 billion in buybacks and $US56 billion in cash dividends.

BHP Billiton should jettison its US petroleum business (offshore and on), which is undervalued by the market, does not contribute value to the company and does not mesh with BHP's traditional mining operations, an activist shareholder said Monday in a letter to company directors. Elliott claims that after the demerger of BHP's non-core assets into South32, the London legal entity now generates just 10.3% of revenue.

Elliott also proposed that BHP Billiton split off its US oil and gas division, a move the company has rejected previously.

Australia's Treasury department has warned that any of the major changes to BHP Billiton's corporate structure proposed by activist fund Elliott Management would need to be in the country's national interest.

The activist fund said it holds 4.1 per cent of BHP's UK-listed stock and rights for another 0.4 per cent of the Sydney-listed BHP Billiton Ltd shares. PNC Financial Services Group Inc. now owns 4,700 shares of the mining company's stock valued at $142,000 after buying an additional 3,964 shares during the period.

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In blue-chip risers, shares in BHP have been in demand after Elliott Advisors sent a letter to the miner proposing a plan, involving scrapping the miner's London listing, demerging its U.S. oil unit and revising its capital return policy.

BHP lowered its dividend for the first time in 15 years in February 2016 amid weaker commodities prices and scrapped a guarantee of continually rising returns.

Elliott's letter was released late in the day and the jumped in the last half hour of trading on the Australian share market on Monday.

Others remain cautious. Prices of commodities including iron ore and coking coal are likely to fall as much as 40 percent over the next three years as demand peaks, according to Dion Hershan, managing director and head of Australian equities at Melbourne-based Yarra Capital Management.

"We already value the U.S. (conventional and onshore) oil operations at premiums to listed peers", Mr Fitzpatrick said.

In a note to clients, Shore Capital analyst Yuen low said: "We find ourselves coming down on BHP's side of the argument. BHP should embrace a broadening of the discussion to include all shareholders", the hedge fund said.

Any separation of the petroleum business would mark a shift from the recent strategy under BHP CEO Andrew Mackenzie, who has been in his post for almost four years.

Third, BHP would "monetise" its excess franking credits by buying back $US33 billion of its shares from investors over five years.

Taking into account exploration costs, Morgan Stanley values the U.S. operations at $US18 billion ($24 billion), compared to Elliott's ambitious $US22 billion ($30 billion) valuation.

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