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The BHP Billiton PLC (BBL) Earns "Buy" Rating from Jefferies Group

13 April, 2017, 01:27 | Author: Paula Vaughn
  • BHP Billiton shares jumped after a hedge fund proposal to end the company's dual-listed structure

BHP Billiton (BHP) shares are up 4% in USA trading today after activist investor-owners at Elliott Management suggested a three-step plan to boost shareholder value by roughly 50%. "We have had dialogue with Elliott over many months, consistent with our commitment to shareholder engagement", says the company.

Elliott said its plan could increase shareholder value by up to 48.6 percent for holders of BHP's Sydney shares and 51 percent for London shareholders.

According to BHP, Elliott proposes that the Group replace the DLC with a single United Kingdom domiciled company, with a primary listing in London and with Chess Depository Instruments quoted in Australia on the Australian Securities Exchange. It had pointed to returns of $23 billion in share buybacks, and dividends of $56 billion since the mine operator's dual-listed structure was formed in 2001.

In its letter, Elliott told BHP it could unlock shareholder value by spinning off about $22 billion of its U.S. oil assets and list them in NY.

The second suggestion, expected to add US$15 billion in value, is to demerge and separately list BHP's U.S. 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.

Elliott also proposed that BHP Billiton split off its USA oil and gas division, a move the company has rejected previously.

BHP is now listed in both London and Australia, with Elliott pushing for a de-listing in the capital.

The hedge fund owns around a 4.1% stake in BHP Billiton, and also holds rights with its affiliates to acquire up to 0.4% of the miner's shares. "Obviously, to some extent, it's self-serving so I'm sure they are benefiting quite nicely from the bounce we are seeing in BHP Billiton's share price".

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Elliott's letter was released late in the day and the jumped in the last half hour of trading on the Australian share market on Monday.

With any pressure likely to take some time to build, several London-based hedge funds spoken to by Reuters said they were steering clear for now.

Elliott has proposed a three-step plan for BHP in a detailed 39-page presentation.

It is understood BHP has not been aware of the details of Elliott's proposals because Elliott only sent a letter to BHP directors outlining its suggestions on Monday, April 10.

Analysts said there would be value in unlocking franking credits in the Australian-listed business - with Morgan Stanley estimating the current value at $US4 billion - but were more wary about gains from spinning out the petroleum business.

"We have laid the foundations for the group to substantially grow the base value of its operations". By merging, Elliott claims the company would be able to reduce inefficiencies and unlock more cash to be returned to investors.

In a note to clients, Shore Capital analyst Yuen low said: "We find ourselves coming down on BHP's side of the argument".

"BHP Billiton's approach is to optimise the long term value of the petroleum business through operating excellence". Call us cynical, but we think that Elliott's proposals are short-termist and for its own benefit.

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