MELBOURNE, Australia--Activist investor Elliott Management Corp. refined its attack on BHP Billiton Ltd., calling for an independent review of its petroleum business and deflecting earlier criticism by proposing the company retain a main stock listing in Australia.
The revised proposals still take aim at unlocking value and halting underperformance in the stock but have shifted following feedback from other shareholders canvassed over the past few weeks, since the public release of Elliott's plans for BHP.
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The changes also appear to address opposition by the Australian government to any attempt to have BHP trade around a main listing in London, which Treasurer Scott Morrison said would be considered a criminal offense.
In a letter to BHP's directors, Elliott said its talks with a number of shareholders found broad support for restructuring the petroleum business, agreement that there would be clear benefits to unifying the dual-listed structure and a shared view that there should be a renewed focus on capital returns.
In response to the revised proposal, BHP said it would review the plans and respond but rejected suggestions it was misleading in its response and that it wasn't open to suggestions. Chief Executive Andrew Mackenzie briefed investors including Elliott at a conference in Barcelona on Tuesday on growth plans he said could lift the value of the company by up to 50% and almost double its return on capital in the coming years. BHP had rejected the earlier proposals as too costly.
In a letter to BHP's directors, Elliott said unification of the dual-stock structure would boost BHP's market value and enable the company to take greater advantage of tax benefits in Australia. But it said it had been questioned by a number of shareholders on its proposal and accepted that there are regulatory issues.
Elliott's plans now call for the company to remain incorporated in Australia and to retain full Sydney and London listings, as well as Australian headquarters and a full Australian tax residence.
It instead said BHP's management should work harder to find a solution to the legacy structure, which it said is obsolete and creates a long-running mismatch between the two shares.
Mr. Morrison said this month that any move would be contrary to the country's interest and would breach orders put in place by the government more than 15 years ago with the merger of Australia's BHP Ltd. and London-listed Billiton PLC that required a listing on the Australian Securities Exchange
In its letter, Elliott also shifted a push for BHP to spin off its U.S. oil and gas assets, which include activities in the Gulf of Mexico and vast onshore shale acreage. It said there are a number of options that would unlock value--including selling or spinning off the U.S. business, and a sale or Sydney listing of the Australian and other oil and gas assets.
Its preference would be a full or partial demerger of the business, but it said the next step is for BHP to launch an in-depth independent review of the petroleum operations and to report its findings.
"We and other shareholders are concerned that despite the clear signs that the market is receptive to a new strategy for BHP, current management seems intent on quieting the enthusiasm for BHP to dig deeper in tackling the obvious shareholder value enhancement opportunities which exist," the letter said.
Speaking in Spain, Mr. Mackenzie said the company acknowledged that it had paid too much and mistimed its entry into the U.S. onshore shale sector but that it expects competitive returns from the operation. Still, he said BHP is pivoting back to conventional oil and gas and is open to options for its shale assets. "If there's a natural owner out there...we're more than happy to talk turkey with them," he said.
Elliott reiterated that the stock has consistently underperformed, blaming what it called value-destroying moves including the about $23 billion foray into the U.S. 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.
It said BHP has underperformed Rio Tinto PLC, its nearest peer, as well as the S&P/ASX 200 and the FTSE 100 indexes, over the past two to eight years.
Elliott, which manages nearly $33 billion, is known as an aggressive activist investor that doesn't shy away from targeting big companies in places where others have been hesitant to wade into local politics.
On Monday, BHP launched a rebranding that drops Billiton from its logo and removes the three stylized blobs that have featured for years, in an advertising campaign that highlights its Australian heritage. It denied the effort was a reaction to Elliott and said it had been developed over about 18 months in an effort to rebuild community trust in the company.
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(END) Dow Jones Newswires
May 16, 2017 04:23 ET (08:23 GMT)