BHP Billiton rejects Elliott's restructure proposals

BHP Billiton Ltd has offices in Australia while BHP Billiton plc is based in London David Gray  Reuters

BHP Billiton Ltd has offices in Australia while BHP Billiton plc is based in London David Gray Reuters

The miner initially dismissed the letter on Monday after the activist hedge fund made the contents public.

"I've asked the question about the fit of petroleum in our business at every major milestone in my time at the company", Chief Executive Officer Mackenzie said Wednesday on a call with analysts, setting out a detailed rejection of Singer's Elliott Management Corp.'s call for a spinoff of the US petroleum operations as part of a company-wide overhaul.

BHP Billiton responded today saying that its petroleum assets benefited from the heft of the wider group and that its capital return track-record spoke for itself.

Specifically, BHP said unifying the corporate structure the way Elliott proposed could destroy at least $1.3bn in value to save less than $2.5m a year for no obvious material or strategic benefit.

"Accepting the status quo will neither improve performance nor maximize shareholder value", Elliott said.

Certainly, most commodity booms are ended when too much supply is commissioned as the miners all expand operations at more or less the same time in order to chase the higher prices. The elements of Elliott's proposal have also been considered by the board.

'Petroleum remains core to the BHP Billiton strategy and has the potential to create significant long term value at high returns, ' Mr Mackenzie said.

BHP, the third-largest iron ore exporter, sees downward pressure on prices in the second half of the year as global supply and stockpiles increase, a senior company executive said last month.

BHP disclosed it had been discussing the proposal with Elliott Advisors for the past eight months.

Analysts generally saw some merit in Elliott's proposals, but none offered wholehearted endorsements. In October, BHP announced plans to invest as much as $5 billion in its petroleum business and also said it was considering additional investments of as much as $2.5 billion to expand existing projects and to possibly acquire new assets.

This dynamic was mirrored in iron ore and coal, and to some extent in crude oil as well, with the emergence of US shale producers in the past few years.

Analysts at Investec said overall, it was a good response. Liberum Capital reaffirmed a sell rating and issued a GBX 730 ($9.06) target price on shares of BHP Billiton plc in a report on Wednesday, January 25th.

Chief financial officer Peter Beaven said the company's dual-listing in Sydney and London has not been a constraint for business, and in fact allowed efficient use of franking credits and provided flexibility to buy back shares at the lowest price.

The single listing would also disadvantage Australian shareholders and remove a form of "acquisition currency".

BHP estimated a further $US1.7 billion in costs on top of that once adjusted for the potential loss of access to tax losses, capital gains tax and stamp duty.

BHP was also wary that if the proposal was to be implemented, for BHP to have a primary listing in the United Kingdom would reduce trading in the miner's shares in Australia, with trading volumes flowing offshore, which could also be detrimental for local investors.

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