BHP gives Elliot the lowdown on its plan
BHP Billiton, the world’s largest resources company, rebuffed proposals by hedge fund manager Elliott Funds to spin off its oil business and simplify its corporate structure, arguing the costs outweighed the merits.
BHP, which spun out unwanted assets into South32 in 2015, did not see the merits in the Elliott proposal, said CEO Andrew Mackenzie in a detailed response on Wednesday that outlined the benefits the duallisted company had delivered to shareholders and why the oil and petroleum business remained core to its strategy.
He pointed out the proposal to merge the dual listings had negative capital gains tax implications for South African shareholders, who hold 17% of the Sydney- and London-listed diversified resources company, which has a presence on the JSE, as well as for Australians shareholders.
Elliott and its associates own 4.1% of BHP and made public on April 10 a letter it had sent to the company, arguing that it had underperformed against a portfolio of comparable mineral and petroleum companies over recent years.
WHILE WE ARE NOT SOLD ON PETROLEUM WITHIN A MINER, IT IS CORE TO BHP AND A KEY DIFFERENTIATOR
It also argued that the duallisted nature of the company was inefficient and it needed to “monetise” the $22bn indicated value of its petroleum business.
The cost of unifying the company into a single Australianbased entity in line with the Elliott proposal would be between $1.3bn and $3bn, Mackenzie said, adding that it would generate savings of about $2.4m a year.
Investec analysts said they did not believe BHP had “adequately” tackled the issue raised by Elliott of franking credits — an Australian tax benefit flowing to shareholders receiving dividends — but noted the company had presented a view for all its shareholders, including those in the London-listed entity and those in SA.
“While we are not sold on petroleum within a miner, it is core to BHP and a key differentiator, and Elliot’s suggestion to divest just part of it did not make sense,” Investec said.