Elliott Revises Attack On BHP -- WSJ
May 17 2017 - 3:02AM
Dow Jones News
By Robb M. Stewart
MELBOURNE, Australia -- Activist investor Elliott Management
Corp. refined its attack on BHP Billiton Ltd., calling for an
independent review of its petroleum business and deflecting earlier
criticism by proposing the company retain a main stock listing in
Australia.
The revised proposals still take aim at unlocking value and
halting underperformance in the stock but have shifted following
feedback from other shareholders canvassed over the past few weeks,
since the public release of Elliott's plans for BHP.
The changes also appear to address opposition by the Australian
government to any attempt to have BHP trade around a main listing
in London, which Treasurer Scott Morrison said would be considered
a criminal offense.
In a letter to BHP's directors, Elliott said its talks with a
number of shareholders found broad support for restructuring the
petroleum business, agreement that there would be clear benefits to
unifying the dual-listed structure and a shared view that there
should be a renewed focus on capital returns.
In response to the revised proposal, BHP said it would review
the plans and respond but rejected suggestions it was misleading in
its response and that it wasn't open to suggestions. Chief
Executive Andrew Mackenzie briefed investors including Elliott at a
conference in Barcelona on Tuesday on growth plans he said could
lift the value of the company by up to 50% and almost double its
return on capital in the coming years. BHP had rejected the earlier
proposals as too costly.
In a letter to BHP's directors, Elliott said unification of the
dual-stock structure would boost BHP's market value and enable the
company to take greater advantage of tax benefits in Australia. But
it said it had been questioned by a number of shareholders on its
proposal and accepted that there are regulatory issues.
Elliott's plans now call for the company to remain incorporated
in Australia and to retain full Sydney and London listings, as well
as Australian headquarters and a full Australian tax residence.
It instead said BHP's management should work harder to find a
solution to the legacy structure, which it said is obsolete and
creates a long-running mismatch between the two shares.
Mr. Morrison said this month that any move would be contrary to
the country's interest and would breach orders put in place by the
government more than 15 years ago with the merger of Australia's
BHP Ltd. and London-listed Billiton PLC that required a listing on
the Australian Securities Exchange
In its letter, Elliott also shifted a push for BHP to spin off
its U.S. oil and gas assets, which include activities in the Gulf
of Mexico and vast onshore shale acreage. It said there are a
number of options that would unlock value -- including selling or
spinning off the U.S. business, and a sale or Sydney listing of the
Australian and other oil and gas assets.
Its preference would be a full or partial demerger of the
business, but it said the next step is for BHP to launch an
in-depth independent review of the petroleum operations and to
report its findings.
"We and other shareholders are concerned that despite the clear
signs that the market is receptive to a new strategy for BHP,
current management seems intent on quieting the enthusiasm for BHP
to dig deeper in tackling the obvious shareholder value enhancement
opportunities which exist," the letter said.
Speaking in Spain, Mr. Mackenzie said the company acknowledged
that it had paid too much and mistimed its entry into the U.S.
onshore shale sector but that it expects competitive returns from
the operation. Still, he said BHP is pivoting back to conventional
oil and gas and is open to options for its shale assets. "If
there's a natural owner out there...we're more than happy to talk
turkey with them," he said.
Elliott reiterated that the stock has consistently
underperformed, blaming what it called value-destroying moves
including the about $23 billion foray into the U.S. onshore oil and
gas sector, $8 billion spent on petroleum exploration with no
apparent value created and about $9 billion "destroyed" in share
buybacks at inflated prices.
It said BHP has underperformed Rio Tinto PLC, its nearest peer,
as well as the S&P/ASX 200 and the FTSE 100 indexes, over the
past two to eight years.
Elliott, which manages nearly $33 billion, is known as an
aggressive activist investor that doesn't shy away from targeting
big companies in places where others have been hesitant to wade
into local politics.
On Monday, BHP launched a rebranding that drops Billiton from
its logo and removes the three stylized blobs that have featured
for years, in an advertising campaign that highlights its
Australian heritage. It denied the effort was a reaction to Elliott
and said it had been developed over about 18 months in an effort to
rebuild community trust in the company.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
May 17, 2017 02:47 ET (06:47 GMT)
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