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.
Read also: BHP urged to spin off US oil assets
“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.
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