Shares rise in mining giant BHP Billiton after call for structural reform

Elliott's demerger proposal is based on a view that investors would ascribe a higher value for these assets in a separately listed entity, says BHP.

The world's biggest miner BHP Billiton (AU:BHP) has rejected activist shareholder Elliott Funds' proposal to demerge its United States oil business and end its dual listing to resolve "value inefficiencies".

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

Elliott outlined the proposal in a letter to directors at BHP, adding the miner to a string of firms it has sought to shake up including Samsung Electronics Co Ltd, Dutch paints and chemicals group Akzo Nobel NV and brewer SABMiller Holdings Inc.

Unifying the company could result in a significant capital-gains tax bill, since it would mean transferring assets held by BHP's United Kingdom business to its Australian entity, and would also require approval by the Foreign Investment Review Board of Australia.

"Despite the first-class quality of most of BHP's assets, BHP as an investment has underperformed", Elliott, which manages about $33 billion, said in the letter to the company's board. BHP also has energy assets in Australia. They expect $-0.36 EPS, up 2.70% or $0.01 from last year's $-0.37 per share.

Shares of BHP Billiton Limited (NYSE:BHP) have earned a consensus rating of "Hold" from the seventeen brokerages that are covering the company. The average 12-month target price among brokerages that have covered the stock in the past year is $40.35.

Elliott said it holds a "long economic interest" of about 4.1 percent of the issued shares in London-listed BHP Billiton PLC.

"P's management simply can not justify allocating the capital which the USA onshore assets would need for the US petroleum business to realize its growth potential or meaningful corporate expansion activities".

It pointed to returns of $23 billion in share buybacks, and dividends of $56 billion since the mine operator's dual-listed structure was formed in 2001.

"BHP Billiton has disclosed the information the market needs to fully value the petroleum business", it said. At present, BHP has a minimum underlying attributable profit payout ratio of 50 per cent.

BHP shares rose by 3.5% in NY overnight and by 2.2% in London, after gaining 4.6% to A$25.73 in Australia yesterday.

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

Drilling for oil and digging up minerals are different businesses, and companies should stick to what they do best.

BHP Billiton Limited (ADR) had 43 analyst reports since July 22, 2015 according to SRatingsIntel.

  • Zachary Reyes