BHP Billiton doubles down on its rejection of Elliott Advisors' overhaul plan, calling its benefits "materially overstated"

Courtney Goldsmith
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BHP said it has been in discussions with Elliott for eight months (Source: Getty)

BHP Billiton has responded to an activist investor's overhaul plans in detail, calling the proposals' benefits overstated.

The Anglo-Australian mining giant responded to claims from hedge fund Elliott Advisors that the group could unlock up to $46bn (£36.8bn) in shareholder value by unifying its dual listing structure, spinning off its US oil arm and revising its capital return policy.

BHP initially rejected the proposals, but Elliott, which holds about 4.1 per cent of BHP's London-listed shares, said its response was "dismissive and premature".

Today, the group defended its longstanding strategy, saying Elliott's plan "materially" overstates the potential value that could be created.

Specifically, BHP said unifying the corporate structure the way Elliott proposed could destroy at least $1.3bn in value to save less than $2.5m a year for no obvious material or strategic benefit.

The group added its petroleum business is "core" to its strategy and offers more value to shareholders in its portfolio than as a separate entity.

In a statement, Elliott said BHP's response "misses the main point".

"We put forward a set of proposals designed to reverse the company’s significant underperformance, fix the obsolete group structure, and optimise value for shareholders. The company’s answer – do nothing."

Chief executive Andrew Mackenzie said: “BHP Billiton is now a stronger, simpler company, well-positioned for future economic conditions. We are confident we have everything in place to increase returns and significantly grow shareholder value.”

Analysts at Investec said overall, it was a good response.

"The reality is, in the volatile commodity environment, arguments from both sides have merit."

Investec said: ‚Äč"We are not convinced that BHP has adequately addressed the franking credit issue that underpinned part of Elliott’s argument, but BHP is arguing from the basis of all shareholders in all jurisdictions.

"While we are not sold on petroleum within a miner, it is core to BHP and a key differentiator, and Elliott’s suggestion to divest just part of it did not make sense.

"Like Elliott, we look at forecast cashflows and fret over how they are going to be spent but BHP does have a long history of special returns. Unfortunately, it also has a history of wasted acquisitions, which we hope current management can resist. We think they can."

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