Elliott Management Corp. has urged BHP Billiton Group to spin off about US$22 billion of U.S. oil assets, to return capital through buybacks and to streamline its corporate structure, Bloomberg News reported April 10, citing a letter by the New York-based hedge fund to the miner's board.
Elliott, which owns a 4.1% stake in the London-listed global mining major and the rights to acquire 0.4% of the company's Australian shares, believes that the changes will increase shareholder value by about 50%, will maximize tax credits and will help discourage cash acquisitions.
Under the proposal, the hedge fund is calling for BHP to combine its two separate legal entities listed in Sydney and London into a single Australian-headquartered company, as well as for a separate listing of its U.S. onshore petroleum and offshore Gulf of Mexico assets on the NYSE.
"Despite the first-class quality of most of BHP's assets, BHP as an investment has underperformed," Elliott said, adding that this has been driven by incomplete restructuring of the group's structure and asset portfolio.
The investment firm argues that BHP should buy back shares at a 14% discount using about US$9.7 billion in franking credits.
However, it is unlikely that the company will decide to make any radical changes before the appointment of a new chairman to replace Jac Nasser, who will step down later this year, according to Andy Forster, a senior investment officer at fund manager Argo Investments Ltd.
Elliott noted that BHP's 2015 spinoff of South32 Ltd. was an important step toward streamlining, which focused the company on key assets in iron ore, coal, copper and oil.