Needle Moving Activity Spotted in BHP Billiton Limited (NYSE:BHP)

BHP Billiton CEO Andrew Mackenzie says its four pillar-strategy remains the best way to create value for shareholders, but remains open to suggestions from investors.

BHP was also wary that if the proposal was to be implemented, for BHP to have a primary listing in the United Kingdom would reduce trading in the miner's shares in Australia, with trading volumes flowing offshore, which could also be detrimental for local investors.

BHP Billiton (BHP.AX,BLT.L,BBL,BHP) said Wednesday that its board and management have concluded that costs and associated disadvantages of each element of Elliott's proposal would significantly outweigh the potential benefits.

"By themselves, the US Petroleum assets would face higher financing and operating costs because they would no longer benefit from BHP Billiton's strong balance sheet, global procurement systems and the functional support offered by BHP Billiton's operating model", the company said.

In its extensive presentation, the Melbourne-based miner said the minor shareholder's proposal to overhaul BHP's structure and spin off its U.S. petroleum division was flawed and would involve costs far beyond any benefits. We have assessed in detail many times over past years options to unify the DLC structure and enhancements to our portfolio, including divestment of Petroleum.

At 0900 BST, the shares were down 0.3% to 1,310.50p.

But more likely is that Elliott wanted to kickstart a debate on how best to unlock value in BHP, and put pressure on management to return more of the benefits of the recent rise in commodity prices to shareholders. "Consistent with our capital allocation framework, we regularly consider buybacks as an alternative use for our excess cash". Those reviews have included the key elements of Elliott's proposal.

In a statement, Elliott said the response from BHP to its proposed plan "misses the main point", and that the miner wanted to maintain a "legacy, value-distorting dual-listed company structure".

BHP explains "implementation of Elliott's proposal would also involve significant risk".

BHP Billiton (BHP.AU) has stepped up its defense against Elliott Management, with chief executive Andrew Mackenzie using an investor call to say the US activist hedge fund plans "materially overstate" the potential upside to investors.

Over 12 months BHP Billiton PLC's share price has increased from 750.77 to 1329, a change of 77.02%. BHP Billiton has disclosed the information the market needs to fully value the Petroleum business.

The bigger question is how should the management and shareholders of a company like BHP deal with the inherent cyclical nature of commodities.

"The proposed restructure could waste franking credits".

The miner also claimed it would lead to $7.3 billion of wasted franking credits by paying them out to shareholders that don't own the Australian shares (Australians can use the franking credits to offset their personal tax).It was also noted that South African shareholders would not get rollover relief on capital gains tax.

  • Todd Kelly