Apr 10, 2017, 10:44 AM
Hedge fund manager Elliott Advisors, which holds around 4.1 percent of BHP Billiton Plc, is proposing a plan to increase capital returns to shareholders, which includes demerging the mining and commodity giant’s U.S. petroleum assets and listing them separately on the NYSE.
Elliott sent a letter to the top management of BHP Billiton on Monday, in which it outlines a so-called BHP Shareholder Value Unlock Plan that, according to the hedge fund manager, could enable BHP’s management to give shareholders an increase in value attributable to their shareholdings of up to around 48.6 percent for Sydney-listed BHP Billiton Limited shareholders, and around 51 percent for London-listed BHP Billiton Plc shareholders.
Elliott has identified three key steps to unlocking more shareholder value: unifying BHP’s dual-listed company structure into a single Australian-headquartered and Australian tax resident listed company, demerging and separately listing the group’s U.S. petroleum assets on the NYSE, and a consistent and value-optimized capital return policy.
According to Elliott, BHP’s U.S. oil business is worth around $22 billion, based on commonly utilized valuation metrics for comparable businesses. The indicated value is “well in excess of the current analyst consensus valuation for that business”, the fund manager noted.
A demerger of BHP’s Gulf of Mexico assets in combination with the U.S. onshore petroleum assets would provide a standalone U.S. 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,” the letter reads.
In February, BHP Billiton said in its results for the half year ended December 31, 2016, that its onshore U.S. assets “are now free cash flow positive, reflecting continued improvements in both operating and capital efficiency”. For the 2017 financial year, BHP’s onshore U.S. capital expenditure is expected to be $600 million with “development activity tailored to market conditions”. Earlier in February, BHP Billiton approved spending $2.2 billion of its share of development of BP-operated Mad Dog Phase 2 deepwater project in the Gulf of Mexico.
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