Liberum Capital Reaffirms Sell Rating for BHP Billiton plc (BLT)
01:33, Apr 13, 2017
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"Costs and associated risks of Elliott's proposal would significantly outweigh any potential benefits", responded BHP.
The miner's London shares rose by another 1% today, up 12.5p to 1328p, adding to a 4% gain yesterday, suggesting investors are banking on chief executive Andrew Mackenzie taking action despite giving Elliott the cold shoulder yesterday.
The value unlock plan includes a plan where BHP would sell its US petroleum business to focus on its core competencies, and finally, Elliot Management said it would undergo a strategy to optimize capital returns, citing many "value-destructive acquisitions".
The company said it had returned US$23 billion in share buybacks and $56 billion in cash dividends since it became dual-listed in 2001.
BHP, the largest overseas investor in USA shale, should seek a separate listing of its US onshore petroleum and offshore Gulf of Mexico assets on the New York Stock Exchange to realize their growth potential, said the hedge fund, which values the assets at $22 billion The business's expansion opportunities are limited under BHP, which has competing priorities for capital allocation, according to Elliott.
The second suggestion, expected to add US$15 billion in value, is to demerge and separately list BHP's United States onshore and Gulf of Mexico petroleum assets on NYSE, allowing for operational improvements like South32, which has outperformed BHP since its demerger almost two years ago.
They go on to argue, "There is no obvious discount in BHP Billiton's trading multiples relative to the weighted average of relevant mining and oil gas peers".
Polaris Capital Management LLC raised its stake in BHP Billiton PLC by 15.8% in the second quarter.
BHP has "become a lot more disciplined on capital allocation", said Andy Forster, senior investment officer at Argo Investments Ltd., which manages more than A$5 billion ($3.7 billion) and holds BHP's Sydney-listed shares.
'My read on this development is that it will be the jaw-boning and the discussions that will drive the share price not so much the actions, ' he said.
"This letter is saying, maybe indirectly, that 'you guys aren't managing the company properly,"' said Wayne McCurrie, a fund manager in Johannesburg at Ashburton Investment Management Co., which owns BHP shares.
Over the last twelve months BHP Billiton PLC's stock price has increased by 75.29% from 750.77 to 1316.
The Sydney shares closed 4.6 per cent higher at A$25.73 on Monday, while the London shares were up over 5 per cent in early trade.
"BHP should embrace a broadening of the discussion to include all shareholders".
In addition, Elliott's proposal includes BHP Billiton buying back shares according to a formulaic approach without regard for the cyclical nature of the resources industry or the returns available from other uses of cash.
Taking into account exploration costs, Morgan Stanley values the U.S. operations at $US18 billion ($24 billion), compared to Elliott's ambitious $US22 billion ($30 billion) valuation. Call us cynical, but we think that Elliott's proposals are short-termist and for its own benefit.
The letter "places a spotlight on BHP's US onshore business and its place in the broader group", said Alon Olsha, a mining analyst at Macquarie Group Ltd.in London.
"We already value the USA (conventional and onshore) oil operations at premiums to listed peers", Mr Fitzpatrick said.
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