Hedge fund Elliott says BHP is a chronic underperformer

Randall Padilla
May 29, 2017

- Elliott called on BHP on April 10 to restructure its current corporate structure, which consists of a United Kingdom and an Australian company, and spin off its petroleum unit.

Chief executive of the Australian mining giant, Andrew Mackenzie, said the miner was in progress on its ambitious plans to achieve this as outlined last year.Mackenzie said since that time, BHP had made consistent progress and was confident that continued delivery of these plans could grow the value of the company by up to 50 percent and nearly double the return on capital.

"We acknowledge that the acquisitions that took us into this business were poorly timed, that we paid too high a price", Mackenzie said, pointing to a reduction in operating costs within the business.

BHP has said it would review the plans and respond.

Elliott carried out talks in the past month with investors holding tens of billions of dollars of BHP shares and believes there's "extremely broad and deep-rooted shareholder support" for an assessment of the petroleum division, the New York-based fund said Tuesday in a statement, without naming the shareholders.

This is the story many in the business media and the investment industry won't tell you - but that attack on BHP from a U.S. hedge fund and private equity group has collapsed as it has been forced to significantly recast its ideas. It said there are a number of options that would unlock value-including selling or spinning off the USA business, and a sale or Sydney listing of the Australian and other oil and gas assets.

The miner started out life in 1885 as the Broken Hill Proprietary Company, or BHP, and retained that name until its 2001 merger with Anglo-Dutch mining company Billiton, said United Kingdom newspaper, the Guardian.

The statement from Elliott comes after BHP dismissed the hedge fund's "shareholder value unlock plan".

A source close to BHP said the company expected to meet Elliott in Barcelona.

World's biggest miner BHP Billiton said on Tuesday it was in progress for further cost reductions and implementing technology programs to improve safety and unlock resource in a bid to grow value and improve returns.

"The current period of shareholder activism could result in a break-up and/or a significant adjustment of the company's structure", Citi said in a note this week.

Elliott adopted a new approach to a proposed dismantling of BHP's dual-listed structure. IAG has its primary listing in Spain but also trades in London and remains part of the benchmark FTSE 100 index.

Its share price has fallen since Elliott launched its attack in April and the London stock is down almost 9 percent since the start of the year.

Elliott has put the cost of unification at $200 million and said BHP's $1.3 billion estimated cost was "flawed and misleading".

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