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BHP Billiton’s chief executive on Wednesday dismissed a proposal from hedge fund Elliott Advisors to unify its corporate structure and sell its oil unit as “financial engineering.”
Elliott’s publicly released plan “doesn’t add the value of running our company and running our assets better,” Andrew Mackenzie, BHP’s chief executive, said in a call with reporters after the miner released a second detailed rebuttal to the fund.
Mr Mackenzie said the Anglo-Australian miner had been in discussions with Elliott for eight months but “early on it was clear there were major flaws in what Elliot were proposing and despite efforts to provide feedback . . . Elliott were unwilling to consider any of our alternative views.”
In a growing war of words, BHP said in its statement that Elliott “materially overstates the potential value” of unifying its corporate structure into one Australian headquartered company.
The plan could actually destroy at least $1.3bn in value to save less than US$2.5m a year, “for no identifiable material or strategic benefit,” it said.
Mr Mackenzie said BHP had sought advice from investment banks on spinning out its oil business but insisted that it had more value remaining within BHP. The oil business actually had more synergies with large-scale copper, coal and iron ore than it would have with downstream oil and petrochemicals as in a typical oil company, he said.
Mr Mackenzie also said Elliott’s proposals for consistent share buybacks were overly restrictive and would not allow the company to do mergers and acquisitions at the bottom of the cycle.
“Most of our investors would agree with us that some of the best opportunities come about by investing counter-cyclically,” he said. “Having come through a low point in the cycle we believe it’s important to have a strong balance sheet as you move through the cycle so you have the firepower.”
Update: In a further response to Mr Mackenzie’s comments Wednesday, Elliott said BHP management had missed the main point of its proposals.
“The company’s answer – do nothing,” Elliott said in a statement. “Accepting the status quo will neither improve performance nor maximize shareholder value.”