The world's biggest miner BHP Billiton (AU:BHP) has rejected activist shareholder Elliott Funds' proposal to demerge its U.S. oil business and end its dual listing to resolve "value inefficiencies".
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 USA oil unit and revising its capital return policy.
'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.
But BHP Billiton said the plan's cost to boost shareholder value would be too high to have any real benefit.
It their assessment of Elliott's proposal, Wall Street Journal reporters Scott Patterson, David Benoit and Robb M. Stewart note that Elliott, managed by Paul Singer, first contacted BHP management a year ago, has participated in the shakeup of Samsung Electronics and is trying to oust the chief executive of Arconic (ARNC), the former USA aluminum giant Alcoa.
BHP shares rose by 3.5% in NY overnight and by 2.2% in London, after gaining 4.6% to A$25.73 in Australia yesterday.
BHP said there was "no obvious discount" in its share price due to its USA petroleum assets, which Elliott believes does not fit with BHP's top-tier mines and would be better off in a stand-alone entity.
"I think BHP has probably been asked 10 times in the last 15 or 17 years to unwind the (dual-corporate structure)", the fund manager said.
Elliott's proposal argued BHP should be an Australia-headquartered firm paying Australian taxes to eliminate the trading value mismatch between the two lines of shares and optimise the value impact of share buybacks.
The price-to-book ratio of the Bloomberg World Mining Index of nearly 130 producers has jumped since tumbling to the lowest on record last year, touching a near four-year high in February, as investors ascribe a greater value to the companies' assets. In doing so, we have laid the foundations for the Group to substantially grow the base value of its operations. Elliott is seeking to oust Arconic Chief Executive Officer Klaus Kleinfeld and replace four directors.
It also suggested changes to BHP's corporate structure. Liberum Capital's target price per share indicates a potential downside of -39.41% from the company's last stock close.
In a note to clients, Shore Capital analyst Yuen low said: "We find ourselves coming down on BHP's side of the argument".
In addition, Elliott's proposal includes BHP Billiton buying back shares according to a formulaic approach without regard for the cyclical nature of the resources industry or the returns available from other uses of cash. The company said in February that oil and copper are better placed in longer-term than materials including iron ore and coal. The stock was very attractive in 2016, when it rose more than 40%. The Iron Ore segment is engaged in mining of iron ore.
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