Johannesburg – The world’s largest miner, BHP Billiton, has rubbished proposals that it should spin off its oil assets and get rid of its dual listings.
In a statement issued on Wednesday, the diversified miner said doing so would destroy billions in value, for very little in savings.
Its statement is in response to a proposal earlier this month by activist Elliott Management Corporation, urging it spin off about $22 billion of US oil assets and list them in New York.
Bloomberg also reported earlier this week that Elliott also said BHP, which has two separate legal entities listed in Sydney and London run as one group, should unify into a single Australian-headquartered company.
The wire service said the New York-based hedge fund wants BHP to return capital through buybacks that would maximise tax credits and discourage expensive cash acquisitions.
In response, BHP says its board and management have concluded that the costs and associated disadvantages of each element of Elliott’s proposal would significantly outweigh the potential benefits.
“We believe that Elliott materially overstates the potential value that could be created by its proposals.”
CEO Andrew Mackenzie notes “BHP Billiton is now a stronger, simpler company, well-positioned for future economic conditions. We are confident we have everything in place to increase returns and significantly grow shareholder value.”
The company says Elliott’s proposals are not new to BHP Billiton.
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“We have assessed in detail many times over the past years options to unify the DLC structure and enhancements to our portfolio, including divestment of Petroleum. Consistent with our capital allocation framework, we regularly consider buybacks as an alternative use for our excess cash.”
BHP adds management has been engaged in discussions with Elliott over many months on its proposals and is familiar with the views expressed by Elliott. The elements of Elliott’s proposal have also been considered by the board.
BHP explains “implementation of Elliott’s proposal would also involve significant risk. It would leave a sub-scale residual petroleum business within BHP Billiton, put pressure on the group’s strong balance sheet and we would lose significant diversification benefits.”
It says Elliott’s proposal could destroy at least $1.3 billion in value to save less than $2.5 million a year – “for no identifiable material or strategic benefit”.
The world’s largest miner adds petroleum remains core to its strategy and has the potential to create significant long term value at high returns. “With our strong business plan, our view is that the Petroleum business as a part of the BHP Billiton portfolio currently offers more value to shareholders than if it were a separate entity.”
BHP adds removing its dual-listing company structure – on the London and Australian stock exchanges – would harm shareholders because of the costs that would be incurred. “The associated incremental taxes and duties could result in a potential loss in value of at least $1.3 billion,” compared with less than $2.5 million a year in savings.
In addition, it says, South African shareholders, who comprise 17 percent of the BHP Billiton Plc register, would face particular risk as they would not obtain capital gains tax roll-over relief and might need to pay tax under Elliott’s proposal.
BUSINESS REPORT ONLINE