March 21, 2018

Elliott Responds To BHP's Approach

17 May 2017, 02:21 | Frank Carlson

Zacks Investment Research lowered shares of BHP Billiton plc from a buy rating to a hold rating in a report released on Friday April 14th

BHP Billiton plc logo

Elliott also said it had seen a significant groundswell of dissatisfaction among BHP shareholders because of the company's chronic underperformance, and accused its board of not being open to suggestions and misleading in its response to the original proposals.

Elliott had originally suggested BHP should demerge its entire USA petroleum division, but indicated on Tuesday it was open to other ways of fixing the petroleum division, and said it now believed an independent review of the petroleum business was warranted.

BHP Billiton chief executive Andrew Mackenzie believes his strategy to reduce costs and unlock latent growth can grow the company by a further 50 per cent, despite the increasingly nasty campaign run against it by activist investor Elliott Associates.

"In launching Think Big, we will take the opportunity to change our logo and move to a brand that Australians have known us by for generations - BHP", the firm said.

"Our path is deliberate, with value and returns at the centre of everything we do", Mackenzie said.

The investor blamed BHP's US$23bn venture into the U.S. onshore oil and gas sector, the US$8bn spent on petroleum exploration with no apparent value created and about US$9bn poured into share buybacks at inflated prices.

In analysis released today, Elliott says total shareholder returns at BHP have substantially underperformed Rio Tinto as well as the ASX200, the FTSE 100 and the S&P 500 over the year to date and for every year of the last eight years. The 1 year high for the stock price is 1518.5 GBX while the 52 week low is 786.4 GBX. The unit is worth about $22.5 billion, according to Deutsche Bank AG.

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It also backtracked on its proposal for BHP to have its main listing in London following opposition from the Australian government.

An example would be International Consolidated Airline Group IAG.L, which resulted from the 2010 merger of British Airways and Iberia.

"Our assessment is that the tax benefits and the aggressive marketing margins which BHP was seeking in using this structure are unsustainable".

BHP shares are up 0.4% this morning.

Its share price has fallen since Elliott announced its overhaul proposals last month and the London stock is down almost 9 percent since the start of the year.

BHP has cut costs, invested in major growth projects, and has options to increase production capacity across its portfolio, Mr Mackenzie said.

"What this shows is that Elliott aren't fly-by-night, they are clearly sticking around", said Andy Forster, senior investment officer at Argo Investments Ltd., which manages more than A$5 billion ($3.7 billion) and holds BHP's Sydney-listed shares.

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