BHP Billiton snubs proposal to spin off oil assets
THE WORLD’S largest miner, BHP Billiton, has rubbished proposals that it should spin off its oil assets and get rid of its dual listings.
The diversified miner yesterday said that this would destroy billions in value for very little in savings.
This is in response to a proposal earlier this month by activist Elliott Management Corporation, urging it to spin off about $22 billion (R305bn) of US oil assets and list them in New York.
Other reports claimed that Elliott said BHP, which has two separate legal entities listed in Sydney and London run as one group, should unify into a single Australian-headquartered company.
The reports said the New York-based hedge fund wanted BHP to return capital through buybacks that would maximise tax credits and discourage expensive cash acquisitions.
In response, BHP said its board 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.”
Chief executive Andrew Mackenzie 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.”
The company said Elliott’s proposals were not new to BHP Billiton.
Enhancements “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.”
BHP Billiton said it had engaged Elliott over many months, adding that “implementation of Elliott’s proposal would also involve significant risk. It would leave a sub-scale residual petroleum business within BHP Billiton, put pressure on the group’s strong balance sheet and we would lose significant diversification benefits.”
The company said the proposal could destroy at least $1.3bn in value to save less than $2.5 million a year – “for no identifiable material or strategic benefit”.
It said petroleum remained core to its strategy and has the potential to create significant long-term value at high returns. “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.”
The company added that removing its dual-listing company structure – on the London and Australian stock exchanges – would harm shareholders, because of the costs that would be incurred. “The associated incremental taxes and duties could result in a potential loss in value of at least $1.3bn,” compared with less than $2.5m a year in savings.
It said South African shareholders, who comprise 17 percent of the BHP Billiton register, would face particular risk as they would not obtain capital gains tax roll-over relief and might need to pay tax under Elliott’s proposal.