Activist investor Elliott Advisors today outlined a plan to help BHP Billiton's directors unlock shareholder value by unifying the company into a single Australian-headquartered firm, demerging its US oil arm and revising its capital return policy.
BHP's shares were up 5.05 per cent at 1,352.5p in morning trading.
In the letter, the hedge fund said BHP could increase value attributable to their shareholdings of up to 48.6 per cent for investors in the company's Sydney stock and 51 per cent for London shareholders.
"The goal is to provide details of the BHP shareholder value unlock plan to all of BHP's shareholders so that BHP can engage openly with all parties on the plan," Elliott said in a statement.
However, after reviewing the proposal, BHP concluded "the costs and associated risks of Elliott's proposal would significantly outweigh any potential benefits".
Elliott said it holds a long term economic interest of around 4.1 per cent of BHP's London-listed shares.
The hedge fund wants BHP to be an Australia-headquartered firm paying Australian taxes, eliminating the trading value mismatch between the two lines of shares and optimising the value impact of share buybacks.
The group also proposed spinning off BHP's US oil and petroleum arm into a separate listing on the New York Stock Exchange, estimating its value at around $22bn (£17.7bn)
Elliott said BHP is expected to generate $31bn of excess cashflow in the next five years, but it has previously used excess cash to make "value-destructive" acquisitions.
"Management should avoid making badly timed acquisitions for cash and instead return its substantial upcoming excess cashflow to shareholders by way of highly value-accretive post-unification 14 per cent discounted off-market share buybacks," the fund said.
Elliott manages assets worth more than $32.7bn and its investors include pension plans, sovereign wealth funds and hospitals.
It also holds a 3.25 per cent stake in Akzo Nobel, where it is encouraging the Dutch group to enter talks with PPG.