Why BHP Billiton Ltd Dropped 2.4% Today

13 April, 2017, 01:32 | Author: Celia Hoffman
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Apart from collapsing BHP's dual-company structure into a single entity, Elliott demanded BHP spin-off its substantial United States oil and gas assets and embark on a massive return of capital to investors with a $US6 billion ($8 billion) share buyback.

An worldwide hedge fund holding 4.1 per cent of the shares of BHP Billiton's UK-listed stock wants the global miner to scrap its dual listing in Australia and the United Kingdom and spin off its USA petroleum business for listing on the NY share market.

"Given the plan's potential to unlock up to $46bn in value, we and no doubt other shareholders of BHP, look forward to management providing a more thorough and reasoned assessment of the plan".

But BHP Billiton said the plan's cost to boost shareholder value would be too high to have any real benefit.

That would create a single Australian-headquartered firm that would retain BHP's current stock market listings and keep them in benchmark share price indices in Sydney and London, according to Elliott.

The company said it had returned US$23 billion in share buybacks and $56 billion in cash dividends since it became dual-listed in 2001.

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The New York-based fund on Monday sent an open letter to BHP Billiton (BHP) outlining a bold three-part plan that Elliot's Chairman Paul Singer said could double the value of the company.

BHP said there was "no obvious discount" in its share price due to its USA petroleum assets, which Elliott believes does not fit with BHP's top-tier mines and would be better off in a stand-alone entity.

Elliott Management now oversees approximately $33 billion of assets and owns roughly 4.1 percent of BHP's stock in London. The Elliott funds, together with certain of their affiliates, hold a long economic interest in respect of 4.1% of the issued share capital of BHP Billiton. They now have a Dollars 33 price target on the stock. The average 1 year price objective among brokerages that have issued a report on the stock in the last year is GBX 1,284.10 ($15.95). BHP rallied as much as 5.8 percent in London on Monday after the release of the letter, before ending the day at its highest close in three weeks. "Elliott's proposal would put this at risk", it added.

Step two would be to demerge the United States petroleum business and list it in NY, while the third is to adopt a consistent and value-optimised capital return policy to monetise the substantial franking credit balance through discounted buy-backs.

BHP has built up $9.7 billion of these credits on its balance sheet as the amount of its tax payments in Australia outweighs its dividend payouts to Australian shareholders.

"We have laid the foundations for the group to substantially grow the base value of its operations", BHP said in its statement. The hedge fund claims that returning such a hefty chunk of cash to investors would help "management to avoid making badly timed acquisitions paid for in cash", and "increase the scope for management to pursue appropriate acquisition opportunities using unified BHP's own shares". "BHP Billiton's approach is to optimize the long-term value of the petroleum business through operating excellence".

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