Elliott Advisors is all upset that BHP Billiton (BHP) rejected the plan to end the dual company structure, but keep the separate listings in London and Australia and to spin off and float the company’s petroleum business on the New York Stock Exchange.
Elliott said in a statement overnight Tuesday attacked the management of BHP for the “dismissive and premature nature of their response” to the US-based fund manager’s plans.
BHP said they had looked at the proposals and rejected them as being too costly and not effective for shareholders.
“We have had dialogue with Elliott over many months, consistent with our commitment to shareholder engagement," the world’s biggest miner said in Monday’s statement.
"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."
The Financial review reported this morning that the ideas had been put to BHP eight months ago.
The paper said BHP would be releasing a longer retort to the Elliott proposal than the initial rejection letter released late Monday.
In a statement, Elliot said it struggled to understand the nature of BHP’s response given the detail it provided on its plan that it argued has the potential to unlock $US46 billion in value.
The statement said:
“Given the plan’s potential to unlock up to $46 billion in value, we and no doubt other shareholders of BHP look forward to management providing a more thorough and reasoned assessment of the plan.
According to the AFR that will come today.
The Elliott plan will founder because it is naive and based on a lack of understanding about Australia. When it proposes to unify the listings into one company and list them on the ASX and London exchange, it is talking about unifying HP around the plc company, not BHP Billiton td, the Australian company.
No Australian government would allow that to happen – what is in effect a reverse takeover by a minnow (the Plc company is worth $US70 billion BHP around $US136 billion). The Australian shares would be transferred into CHESS depository instruments, which would not have the same ease of dealing as the shares do now.
And by Elliott’s own numbers, the changes would result in a $US1 a share dilution in the value of the “Limited” shares. This value would shift to London listed shares which have traded historically at a discount to the ASX listed shares, meaning that some of the big global investors who own the ASX shares such as Blackrock and Capital are being asked to lose heavily (cut the value of their stakes by at least 4%).
Big local holders such as AFIC and Argo are close to the BHP board and would not be in favour of the changes because of the watering down in the value of their holdings.
To win Elliott has to either frighten the BHP board into changing structures, or convince at least 50% of owners of at least 75% of shares to support the changes – which will be a big ask.
BHP shares in London fell 0.1% on Tuesday while the shares listed in Sydney finished down 1.2%, but still up over the two days because of Monday’s 4.6% jump.
