ASX: Investors mull BHP restructure

Mining giant BHP Billiton has rejected a proposal by hedge fund Elliott Advisors to restructure its business by shedding its dual Australia-UK listing and spinning off its petroleum business. Finally, Advisory Services Network LLC increased its position in shares of BHP Billiton Limited by 5.2% in the third quarter.

Elliott said that despite being a global resources company with top-line assets, BHP had underperformed as an investment asset in recent years.

BHP Chairman Jacques Nasser in November 2015 defended the company's structure as two listed firms, warning the costs of changing the setup would likely be high.

BHP Billiton's share price rose 7% to R234.36 on Monday morning after hedge fund manager Elliott Advisors suggested it spin off about $22bn of USA oil assets. In the letter, the fund manager also called for the adoption of a consistent capital-return policy that would seek share buybacks rather than using cash for what it called "value-destructive" large-scale acquisitions.

BHP's offshore US assets should go as well, Elliott said.

Shares in Melbourne-based BHP surged as much as 5.8 percent in London and closed 4.6 percent higher in Sydney, suggesting some investors reckon Elliott's effort will bear some fruit.

".[I] ts intrinsic value is being obscured by bundling it with BHP's other assets", Elliott said.

BHP doesn't agree with the assessment, saying the proposals' "costs and associated risks ... significantly outweigh any potential benefits".

BHP Billiton shares bolted higher yesterday (taking the wider market up by almost three quarters of a per cent) after a hedge fund released a letter it had sent to the board urging the company to spin off its some of its petroleum business and list it on stockmarket.

It also said it sees no obvious discounting in BHP's trading multiples by retaining the petroleum assets in the main company. "If they are a shareholder and can agitate and get the share price up that is a win".

"Since the formation of the dual-listed company in 2001, we have returned to shareholders approximately USD23.00 billion in buybacks of BHP Billiton Ltd and BHP Billiton PLC shares, and approximately USD56.00 billion in cash dividends", BHP added. Most of that underperformance "has been driven by the incomplete status of management's streamlining and value-optimization of BHP's group structure and asset portfolio", it said.

BHP Billiton is being targeted for an overhaul by sometimes-activist Elliott Management Corp., which is urging the world's biggest mining company to unify its corporate structure, spin off more assets and improve capital returns. BHP's US oil-and-gas assets in Texas, Louisiana, Arkansas and the Gulf of Mexico - acquired in 2011 - account for roughly 20% of profits, and are valued at roughly $22 billion.

Any separation of the petroleum business would mark a shift from the recent strategy under BHP Chief Executive Officer Andrew Mackenzie, who has been in his post for almost four years.

  • Zachary Reyes