BHP Billiton urged by Elliott to spin off assets

Apr 13, 2017, 01:25
BHP Billiton urged by Elliott to spin off assets

Elliott Management Corp's activist campaign to shake up Anglo-Australian mining group BHP Billiton, relies on tested US shareholder activism strategies to deliver one of the hedge fund's biggest ever bets on a company.

"Unfortunately, despite the progressive and successful demerger of South32 in May 2015, BHP's management still can not deliver optimal shareholder value without resolving the shareholder value inefficiencies caused by its dual-listed company structure; monetising the intrinsic value of BHP's USA petroleum business, the value of which is being obscured by its continued inclusion within the group; and enhancing capital management to an optimal level", Elliott said.

For its part, BHP rejected Elliott's plans, saying: "After reviewing the elements of Elliott's proposal, we have concluded that the costs and associated risks of Elliott's proposal would significantly outweigh any potential benefits".

Eliminating the British arm to release tax benefits relevant to holders of the Sydney stock was not a new idea, said an Australian fund manager with shares in BHP, who had not closely reviewed Elliott's proposal and so declined to be identified.

Elliott also called for BHP to merge its existing mining operations to its headquarters in Australia and remove its dual Sydney-London stock listing. At Arconic, it's aiming to oust Chief Executive Officer Klaus Kleinfeld and replace four directors. Elliott Management is overseeing about $33 billion of assets, owns about 4.1 percent of BHP's London stock.

BHP said it returned $23 billion in share buybacks since the dual-listed structure was formed in 2001 and paid out $56 billion of dividends. 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. Goldman Sachs Group Inc reaffirmed a "neutral" rating and set a GBX 1,550 ($19.25) target price on shares of BHP Billiton plc in a report on Friday, February 17th. "BHP should embrace a broadening of the discussion to include all shareholders.we and, no doubt, other shareholders of BHP look forward to management providing a more thorough and reasoned assessment of the plan".

In a note to clients, Shore Capital analyst Yuen low said: "We find ourselves coming down on BHP's side of the argument".

Step two would be to demerge the U.S. petroleum business and list it in NY, while the third is to adopt a consistent and value-optimised capital return policy to monetise the substantial franking credit balance through discounted buy-backs. At present, BHP has a minimum underlying attributable profit payout ratio of 50%.

"As you know, Paul was very much involved with the anti-Trump or as they say "Never Trump" and Paul just left and he's given us his total support and it's all about unification". "BHP Billiton's approach is to optimize the long-term value of the petroleum business through operating excellence".

As a result, BHP Billiton has exposure to a wide range of commodities like coal, iron ore, copper and petroleum. Eventually, BHP Billiton plc Industrial Metals & Minerals exhibits an EPS value of 5.30% for the next five years.

COPYRIGHT VIOLATION NOTICE: "BHP Billiton plc (BLT) Given Consensus Recommendation of "Hold" by Brokerages" was first published by Community Financial News and is owned by of Community Financial News.