Anglo-Australian miner BHP Billiton said on Wednesday a minor shareholder’s proposal to overhaul its corporate structure and spin off its U.S. oil division was flawed and would involve costs far beyond any benefits.
BHP (BHP) made the comments in a detailed response to a letter from Elliott Advisors seeking the end of a structure that bases the firm in both London and Sydney, claiming that and other measures could unlock up to $46 billion in shareholder value.
The miner initially dismissed the letter on Monday after the activist hedge fund made the contents public.
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“The elements of the Elliott proposal as described to the board would not be in the long-term interest of shareholders,” said BHP Chief Executive Officer Andrew Mackenzie on Wednesday.
“I cannot overstate my strong belief that BHP Billiton is on the right track,” he said on a call with analysts.
Elliott declined to immediately comment on Wednesday’s response.
MAJOR FLAWS
The exchange comes as BHP enjoys a rise in commodity prices, albeit one that most miners expect to be short-lived. Elliott, meanwhile, is also lobbying for change at Samsung Electronics (SSNLF) and Dutch paint and chemicals group Akzo Nobel NV (AKZOY).
BHP’s response offered no counterproposal to unlock shareholder value, saying the figure in Elliott’s proposal was overstated. Instead, BHP defended its longstanding strategy and maintained oil was a “core” element.
“We have been in engagement with Elliott for eight months,” Mackenzie said. “From our earliest engagements it was clear there were major flaws in Elliott’s proposals.”
BHP has previously examined and the rejected the possibility of changing its structure and spinning off its oil business.
“A standard petroleum business would lose access to BHP Billiton’s balance sheet,” Mackenzie said. “Were we to adopt this proposal our global partners would have to work with a Balkanised, broken up BHP Billiton.”
SOME MERIT
Analysts generally saw some merit in Elliott’s proposals, but none offered wholehearted endorsements.
“Their (BHP’s) defense is talking about what a great margin business it (U.S. petroleum) is,” said a mining analyst speaking on condition of anonymity due to employer restrictions on speaking with media.
“Shale gas prices and U.S. energy dynamics have changed a lot in the last five years. Yet you are looking on the past saying what a wonderful inclusion the business will be going forward,” the analyst said.
Elliott, which on Monday said it had a “long economic interest” of about 4.1% in BHP’s London-listed shares, wants the miner to be a single company domiciled in Britain, with a primary share-market listing in London and a secondary listing in Sydney.
“The (dual-listed structure) is not a restraint to our business,” BHP Chief Financial Officer Peter Beaven told analysts. “It provides two important acquisition currencies in addition to cash.”
Unifying the corporate structure in the manner proposed by Elliott could destroy at least $1.3 billion in value to save less than $2.5 million a year, according to BHP.
BHP also said its Australian shares currently trade at a 14% premium to its London shares. Australian shareholders would face downside risk if new London-listed shares adopted under Elliott proposal’s were to trade at a blended price, it said.
