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BHP Billiton has come under fire from activist investor Elliott Management, which is calling for the resources giant to unlock shareholder value by spinning off its US petroleum assets.
The miner’s shares spiked in late Australian trade after Elliot said it had sent a letter to the Anglo-Australian miner’s directors outlining a plan to “unlock value and improve capital returns to shareholders” by around 50 per cent.
Elliott said that BHP had a “first-class portfolio of assets which are failing to deliver optimal value for shareholders” and added that even since the spin off in May 2015 of South32 – which mostly contained BHP’s base metals and coking coal assets – and said the parent company “still cannot deliver” shareholder value without ironing out the inefficiencies associated with its dual-listed shares, US petroleum business and enhancing its capital management plans.
Elliott also revealed it had a 4.1 per cent stake in the company’s London-listed shares. BHP’s Sydney-listed stock made a late charge, rising as much as 4.9 per cent to A$25.79 on Monday, the highest level since mid-February.
The hedge fund outlined three main steps that could boost shareholder value including:
- Unifying BHP’s dual-listed company structure into a single Australia-headquartered and Australian tax resident company
- Spinning off and separately listing the company’s US petroleum business on the New York Stock Exchange
- Adopting a consistent capital return policy that would allow it to take advantage of its substantial franking credit balance through off-market buybacks, rather than using its excess cash “to make value destructive acquisitions”, Elliott said.
Elliott estimated its plan could lift the value of Australia-based investors by 48.6 per cent and by 51 per cent for UK-based investors.
In February, BHP swung back to profit in the six months ended December 31, with a $3.2bn net profit, compared to a loss of $5.7bn a year earlier. The company, which last year slashed its interim payout and scrapped its progressive dividend policy, this year paid out a first-half dividend of 40 US cents per share, which was higher than analysts estimated.
Chart courtesy of Bloomberg