PERTH (miningweekly.com) – Minority shareholders have presented diversified resources group BHP Billiton with a plan that could potentially unlock up to 51% of value to company shareholders.
Fund managers Elliot Associates and Elliot International, which along with affiliates hold a 4.1% interest in BHP, have sent a letter to BHP management suggesting a three-tiered approach to unlocking this value.
Elliot’s first suggestion is that BHP should unify its dual-listed company structure into a single Australian-headquartered and Australian tax resident listed company.
The fund manager also suggests that BHP should demerge and separately list its US petroleum business on the NYSE, while also adopting a consistent and value optimised capital return policy to monetise the franking credit balance through discounted off-market buy-backs.
Elliot argues that its analysis indicates that the US petroleum business has not been able to successfully contribute to shareholder value at BHP since it provides no meaningful diversification benefits to BHP as a whole, and since there are a lack of synergies between BHP's US petroleum business and its mining assets. It also argues that the intrinsic value of the petroleum assets is being obscured by bundling it with BHP's other assets.
“We see the demerger of BHP's Gulf of Mexico assets in combination with the US onshore petroleum assets as providing a standalone US petroleum business with consistent cash flow to fund its own further expansion, allowing BHP to increase its focus on its core competencies and also helping the value of BHP's remaining core portfolio to positively re-rate.”
“In our view, most of BHP's underperformance in terms of total shareholder returns has been driven by the incomplete status of management's streamlining and value-optimisation of BHP's group structure and asset portfolio. The Value Unlock Plan is designed to directly address this and would be the logical next step,” Elliot said in a letter to BHP.