BHP boss to meet Elliott activists after revised attack

Dianna Christensen
May 29, 2017

Elliott has also unpicked much of BHP's rationale for rejecting its Shareholder Value Unlock Plan proposals, exposing flawed and misleading claims from BHP management on the supposed costs of proposed unification measures, created to defend an entrenched "do nothing" approach.

Elliott on Tuesday called for an independent review of the mining giant's petroleum business and seemingly backed down on the restructure, saying it was open to a unified company that would retain its full share market listing in Australia and London.

"We will review the materials in full and formally respond as appropriate", BHP said in a statement, adding that chief executive Andrew Mackenzie will update shareholders on its plans to significantly grow long term shareholder value.

The producer acknowledges its USA shale acquisitions "were poorly timed, that we paid a too high price, and that the rapid pace of early development was not optimal", Mackenzie said Tuesday in a speech to a conference in Barcelona.

Speaking at the Bank of America Merrill Lynch Global Metals, Mining & Steel Conference in Spain, chief executive Andrew Mackenzie said BHP had made consistent progress in the previous year on its plans to improve shareholder value.

In a subsequent letter and accompanying presentation provided to BHP today, Elliott reveals extremely broad and deep-rooted shareholder support for proactive steps to be taken by BHP management to review its petroleum business. "We have seen a significant groundswell of dissatisfaction among shareholders, which is rooted in BHP's chronic under-performance", the fund said. It's because BHP's petroleum business looks well suited to a spinoff, and the more BHP resists, the more attractive its oil wells become.

Elliott's change of the focus of its attack on BHP, its board and management by calling on the company to concentrate more on costs means that of its original proposal, only the spinning off the U.S. oil and gas operations has been retained.

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"So far I think (BHP) make a convincing case to let them extract value as they have in other parts of the business", he said. Copper and coal costs have also been slashed as well.

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

"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. It was the first time BHP had met with Elliott since the fund went public with a $46 billion overhaul proposal on April 10.

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

Elliott reiterated that the stock has consistently underperformed, blaming what it called value-destroying moves including the about $23 billion foray into the USA onshore oil and gas sector, $8 billion spent on petroleum exploration with no apparent value created and about $9 billion "destroyed" in share buybacks at inflated prices.

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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