JOHANNESBURG (miningweekly.com) – The proposal by BHP Billiton’s activist shareholder Elliott Advisors that the company scrap its dual-listed company (DLC) structure in favour of a primary listing in London and a secondary listing in Sydney, could destroy at least $1.3-billion in value, to save less than $2.5-million a year, the miner said on Wednesday.

It added in a statement that this would be for no identifiable material or strategic benefit. Reuters earlier this week reported that Elliott said the changes in the listing structure would add $1.50 of value per BHP Billiton share for the holders of London-listed shares but take away $1 in value from the holders of the Australian-listed shares.

The bulk of Elliott's BHP shareholding is in the UK-listed arm, in which it holds a stake of 4.1%. It has rights to acquire an interest of up to 0.4% in the Australian-listed arm.

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

However, BHP, led by CEO Andrew Mackenzie, said that petroleum remained core to its strategy and has the potential to create significant long-term value at high returns.

“With our strong business plan, our view is that the petroleum business as a part of the BHP Billiton portfolio currently offers more value to shareholders than if it were a separate entity,” the company added.

In a conference call on Wednesday, Mackenzie said the company had been engaging with Elliot for around eight months. “Early on, I was really excited about entering into the discussions. I thought Elliot would provide some good ideas that we may have missed.

“We are constantly looking for ideas to create more value for our shareholders and welcome ideas from all shareholders. In this case, we hoped . . . to create some novel solutions,” he noted.

However, he added, BHP had, early-on in the discussions, identified “major flaws” in Elliot’s proposals. “Despite huge effort to provide constructive feedback, Elliot is unwilling to adapt its initial position or to consider our alternative views,” he stated.

Meanwhile, BHP says the restructure could make buybacks less attractive from a shareholder perspective. Unifying the DLC would reduce the proportion of franking credits that could be used when the group conducts off-market buybacks of securities quoted in Australia on the ASX – reducing the potential returns for all shareholders.

Further, it argued that share buybacks were a core element of its capital allocation framework. “We have returned to shareholders $23-billion in buybacks, and around $56-billion in dividends since the formation of the DLC. Decisions on buybacks need to consider the cyclical nature of the resources industry and returns available from other uses of cash.

“Essentially, we have come through a difficult period in resources. Prices have been down and our balance sheet has borne this very well. As we come out of the cycle, we have managed to reduce our net debt as well, further strengthening our balance sheet. At this time, we don’t want to take all the hard work we’ve done and reserve it by doing buybacks,” CFO Peter Beaven added in the conference call.

If the DLC was unified, franking credits would need to be attached to the ordinary dividends paid to all shareholders – including to investors not tax resident in Australia who could not use the franking credits.

South African shareholders, who comprise 17% of the BHP register, would face particular risk as they would not obtain capital gains tax roll-over relief and might need to pay tax under Elliott’s proposal.