Global miner BHP Billiton plc (LON:BLT) has given a detailed response to the radical proposals tabled earlier this week by activist hedge fund manager, Elliott Advisors which they believe “materially overstates the potential value that could be created.”
In a letter sent to BHP Billiton directors, Elliott proposed that the FTSE 100-listed firm should scrap its dual-listed corporate (DLC) structure, demerge its oil business and rejig its capital return policy.
Elliot claimed that the reforms it proposed would create 48% more value for Australian shareholders and 51% more value for London shareholders.
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The hedge fund owns around a 4.1% stake in BHP Billiton, and also holds rights with its affiliates to acquire up to 0.4% of the miner’s shares.
However, in a statement today, the Anglo-Australian miner said: “Management has been engaged in discussions with Elliott over many months on its proposals and is familiar with the views expressed by Elliott.”
It added: “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.”
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BHP Billiton said: “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.”
Each point …
Looking at each of the proposals, the miner said that unifying the DLC structure in the manner proposed by Elliott could destroy at least US$1.3bn in value to save less than US$2.5mln a year – “for no identifiable material or strategic benefit.”
It added that petroleum “remains core to the BHP Billiton strategy and has the potential to create significant long term value at high returns.”
The group said: “With our strong business plan, our view is that the Petroleum business as a part of the BHP Billiton portfolio currently offers more value to shareholders than if it were a separate entity.”
And the firm pointed out that share buybacks are “a core element of capital allocation framework”, noting that it has returned to around US$23bn buybacks, and approximately US$56bn in dividends since the formation of the DLC with the merger of BHP and Billiton in 2001.
Andrew Mackenzie, the miner’s chief executive officer, said: "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."