BHP Billiton has again shot down a proposal by Elliot Associates to restructure the company.
The proposal, put forward by the US-based hedge fund on April 10, urged BHP to change its dual-listed company structure, asset portfolio and capital management.
It suggested BHP should operate as a London-based and -listed company, while also demerging its US petroleum assets into a separate entity listed in New York.
In a detailed response to the proposal, BHP stated that many times over past years it had assessed options to unify the dual-listed company structure and enhancements to its portfolio, including the divestment of the petroleum division.
“Consistent with our capital allocation framework, we regularly consider buybacks as an alternative use for our excess cash,” BHP outlined.
“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.
“Against the background of the ongoing assessment by the board and management of our dual-listed company, our portfolio of assets and the capital allocation framework, we have provided detailed feedback to Elliott on the challenges inherent in their proposals.
“The 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.”
BHP believes that unifying the dual-listed structure in the manner proposed by Elliot could destroy at least $US1.3 billion in value to save less than $US2.5 million a year.
In response to the proposal to divest its petroleum assets, BHP stated the division remained core to its strategy and had the potential to create 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,” the company added.
“Furthermore, BHP Billiton has disclosed the information the market needs to value the Petroleum business.”
BHP also noted a strong track record of returning cash to shareholders through buybacks.
“We have returned to shareholders approximately $US23 billion in buybacks, and approximately $US56 billion in dividends since the formation of the dual-listed company,” BHP stated.
Decisions on buybacks need to consider the cyclical nature of the resources industry and returns available from other uses of cash, it added.