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BHP rejects investor push to spin off US oil biz

Activist Elliott Advisors says Oz mining giant's shale, GOM assets could be worth $22bn on standalone basis

BHP Billiton on Monday rejected a plan by activist shareholder Elliott Advisors to scrap the miner's dual company structure, split off its oil business and return more cash to investors, saying the costs would outweigh any benefits.

Elliott outlined the proposals in a letter to directors at BHP, adding the world's biggest miner to a string of firms where it has lobbied for action to boost shareholder returns.

BHP's response prompted its London-listed stock to pare early gains of nearly 6%. By 1500 GMT, it was 2.3% higher.

"After reviewing the elements of Elliott's proposal, we have concluded that the costs and associated risks of Elliott's proposal would significantly outweigh any potential benefits," BHP said in a statement.

Elliott said its plan would retain BHP's listings in London and Australia, but would scrap its dual-company structure in favour of a single headquarters and tax residency in Australia.

BHP would also demerge its US petroleum assets into an entity to be listed on the New York Stock Exchange and commit to returning excess cash to shareholders.

BHP's US oil and gas assets include substantial positions in the Haynesville and Fayetteville shale-gas plays, as well as holdings in the Eagle Ford and Permian basin oil plays. BHP also owns assets in the deep-water Gulf of Mexico, where it has indicated plans to increase spending.

Elliott reckons the BHP's US petroleum business could be worth around $22 billion as a standalone entity. In the current set-up, Elliott said, the shale assets cannot compete for cash within BHP.

"BHP's management simply cannot justify allocating the capital which the US onshore assets would need for the US petroleum business to realize its growth potential or meaningful corporate expansion activities," Elliott said.

Elliott said BHP had underperformed comparable mineral and petroleum companies and its plan could provide shareholders with an increase in value of up to 48.6% for holders of Australian shares and 51% for holders of UK shares.

BHP disagreed.

"There is no obvious discount in BHP Billiton's trading multiples relative to the weighted average of relevant mining and oil and gas peers," it said.

It also said it regularly reassessed how to create value and reviewed company structure. It had spoken with Elliott over many months and would consider a more detailed response, it added.

For now, it dismissed Elliott's plan for buying back shares as "a formulaic approach without regard for the cyclical nature of the resources industry or the returns available from other uses of cash".

Commodity prices crashed in 2015 and early 2016, but have since recovered strongly, helping to drive gains across the mining sector, which led the London stock market higher last year.

Mixed views

Started in 1977, Elliott manages assets worth more than $32.7 billion, according to the company.

It says it holds a "long economic interest" of about 4.1% of the issued shares in London-listed BHP Billiton, without specifying the instruments used to build the stake. It also says it has rights with its affiliates to acquire up to 0.4% of the issued shares in Sydney-listed BHP Billiton.

Other big shareholders were cautious about Elliott's plan.

"(The) principle is OK. Detail and resultant uplift to shareholders might be more complex/less obvious," Aberdeen Asset Management's Head of Equities Hugh Young said in emailed comments.

Aberdeen is the second-biggest investor in BHP's London-listed shares, with a 4.9% stake worth $1.3 billion, regulatory filings to August last year collated by Thomson Reuters showed.

Representing another big shareholder, Standard Life Investments Director Frances Hudson said it was not clear the plan was "in the interest of long-term investors or the company".

Over the past two years, Thomson Reuters data show BHP has underperformed relative to fellow miners Rio Tinto, Glencore and Anglo American. But over 15 years, it is ahead of them.

Since it was set up in 2001, BHP said it had returned about $23 billion to shareholders in buybacks and about $45 billion in cash dividends.

It said it had also taken many steps to increase shareholder value, cut the number of assets in its portfolio by $7 billion since 2013 and cutting unit costs by more than 40%.

"We have laid the foundations for the group to substantially grow the base value of its operations," BHP said in its statement. "Elliott's proposal would put this at risk."

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