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BHP Billiton has politely rebuffed a proposal from Elliott Management to deliver “optimal” value for shareholders and spin off its US oil business, saying the costs of the activist fund’s proposal would outweigh any potential benefits.
The miner said in a statement to the ASX today that it noted the publication of a letter from Elliott, which arrived in the final hour of the Australian trading session on Monday and caused shares to spike and close 4.6 per cent higher.
Elliott, which also revealed it has a 4.1 per cent stake in the miner, said BHP should unify its dual-listed company structure, spin off its US oil business and adopt a consistent capital return policy.
BHP said today it concluded “that the costs and associated risks of Elliott’s proposal would significantly outweigh any potential benefits.”
The Sydney-listed stock is down 1.5 per cent on Tuesday and one of the worst performers on the S&P/ASX 200, which is up 0.6 per cent.
The miner said although it keeps the dual-listed structure under review, it has yet to identify sufficient benefits that would outweigh significant costs that would be incurred by unifying the Sydney-London listings.
Of Elliott’s proposal to spin off the US oil business and list it separately on the New York Stock Exchange, BHP said this proposal was based on the view investors would ascribe a higher value to these assets as a separately listed entity. BHP said there was “no obvious discount” in the company’s multiples relative to other mining and oil & gas peers, and that its approach “is to optimise the long term value of the Petroleum business through operating excellence”.
BHP also defended its capital management policy, saying it constantly assesses the prospect of share buybacks. It pointed to the spinning off of South32 in 2015 and the return of $23bn to shareholders via buybacks and $56bn in cash dividends since the dual-listed structure was introduced in 2001.
The miner said it had “laid the foundations for the Group to substantially grow the base value of its operations” and that Elliott’s proposal would put that at risk.
That said, BHP said it would consider further its detailed response to Elliott’s requests and would make an announcement in due course.