BHP Billiton has again dismissed a wide-ranging proposal by shareholder Elliott Advisors to overhaul its corporate strategy and sell off oil interests, saying the measures would not benefit the firm.
"The elements of the Elliott proposal as described to the board would not be in the long-term interest of shareholders. The costs would significantly outweigh the benefits," BHP chief executive Andrew Mackenzie said on an analyst call. BHP shares eased 0.3% to $25.32 as investors in Australia refused to take the Elliott proposal as being serious, especially destroying the value in the company shares held in Australia and their associated franking credits.
As well it is clear Elliott knows nothing about the conditions set at the time of merger between BHP and Billiton back around 17 years ago and the tight conditions on where the company is to be headquartered and the board meet.
Elliott is seen as just an opportunistic US hedge fund without too much intelligence.
His comments came as BHP released a detailed response two days (http://www.bhpbilliton.com/media-and-insights/news-releases/2017/04/bhp-billiton-review-of-elliott-proposals?utm_source=Subscribers&utm_medium=Organic&utm_campaign=Elliott&utm_campaign=ASX&utm_content=Release) after US-based Elliott made public a letter to the miner’s directors urging them to consider spinning off the US oil arm, while returning more cash to investors.
Mr Mackenzie said in the statement: “BHP Billiton is now a stronger, simpler company, well-positioned for future economic conditions. We are confident we have everything in place to increase returns and significantly grow shareholder value.”
"Elliott’s proposals are not new to BHP Billiton. We have assessed in detail many times over the past years options to unify the DLC structure and enhancements to our portfolio, including divestment of Petroleum. Consistent with our capital allocation framework, we regularly consider buybacks as an alternative use for our excess cash.
"Management has been engaged in discussions with Elliott over many months on its proposals and is familiar with the views expressed by Elliott. The elements of Elliott’s proposal have also been considered by the Board.
"Against the background of the ongoing assessment by the Board and management of our DLC, our portfolio of assets and the capital allocation framework, we have provided detailed feedback to Elliott on the challenges inherent in their proposals. Our presentation today is consistent with that feedback.
"The Board and management have concluded that the costs and associated disadvantages of each element of Elliott’s proposal would significantly outweigh the potential benefits. We believe that Elliott materially overstates the potential value that could be created by its proposals,” BHP said.
Elliott, which said it holds a “long economic interest” of about 4.1% of London-listed BHP Billiton PLC, also wants the miner to ditch its dual corporate structure and replace it with a single company domiciled in Britain.
Such a structure would damage Australian shareholders, and those in South Africa (where Billiton had many of its assets, which are now owned by South 32).
"The (dual-listed structure) is not a restraint to our business," BHP chief financial officer Peter Beaven told analysts. "It provides two important acquisition currencies in addition to cash."
BHP argued in yesterday’s document that the Elliott proposal could cost as much as $US1.3 billion ($A1.74 billion), remove the advantage of franking credits for Australian shareholders and seriously disadvantage its large investor base in South Africa.
BHP estimates that as much as 17% of the capital of the UK listed entity could be South African investors, making up close to half of the shares on issue of its UK arm.
Mr Mackenzie told analysts on Wednesday it would cost a one-off $US1.3 billion ($1.74 billion) to collapse the structure into a single entity, before taking into account transaction costs, while South African holders … would be exposed to capital gains tax, he warned.
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. The annual cost savings from collapsing the structure would be $US2.4 million, it estimated.
"Lots of costs, lots of complexity, and not much to gain," the chief financial officer Peter Beaven said. And value destroying in Australia and it has to run the gauntlet of Australian government scrutiny
